Proposed New Framework For Business Taxation In The European Union

• Published date: 02 June 2021
• Subject Matter: Tax, Income Tax, Corporate Tax
• Law Firm: Maples Group
• Author: Mr Andrew Quinn, William Fogarty, Lynn Cramer and James O'Neal

On 18 May 2021, the European Commission adopted a Communication on Business Taxation¹ for the 21st century which takes account of the G20 / OECD discussions on global tax reform and sets out both a short term and a long term vision to support the EU's recovery from the COVID-19 pandemic. There are three key strands to this Communication:

Business in Europe: Framework for Income Taxation ("BEFIT")

Firstly, by 2023, the Commission will present a new framework for business taxation in the EU. The BEFIT aims to:

1. Provide a single corporate tax rulebook for the EU;
2. Distribute a fairer allocation of taxing rights between EU Member States;
3. Reduce compliance costs;
4. Minimise tax avoidance opportunities; and
5. Support investment in the EU Single Market.

BEFIT will replace the long pending but never agreed EU proposal for a Common Consolidated Corporate Tax Base (CCCTB) across the EU. It will be based on the key features of a common tax base and the allocation of profits between EU Member States based on a formula (formulary apportionment).

The Commission notes that "common rules for determining the corporate tax base will deliver substantial simplification for groups of companies operating in the Single Market. Instead of having to comply with up to 27 different sets of corporate tax rules, a group will be able to determine its tax liability in each EU Member State according to one single set of rules. This will also pave the way for even further administrative simplifications, such as the possibility of a single EU corporate tax return for a group".

BEFIT will consolidate the profits of the EU members of a multinational group into a single tax base, which will then be allocated to Member States using a formula, to be taxed at national corporate income tax rates.

Tax Agenda

Secondly, the Communication also defines a tax agenda for the next two years, with measures that promote productive investment and entrepreneurship, better safeguard national revenues, and support the green and digital transitions. This builds on the July 2020 EU Tax Action Plan. Measures will include:

1. Ensuring greater public transparency by proposing that certain large companies operating in the EU publish their effective tax rates based on the methodology under discussion in Pillar 2 (minimum effective taxation of multinationals' profits) of the OECD Inclusive Framework negotiations. The planned publication of this legislative proposal is by 2022.
2. The use of so called 'shell companies' will...