EU new incoming simplifications, compliance costs and transfer pricing

On 12 September 2023, the European Commission adopted a key package of initiatives to reduce tax compliance costs for large multinational companies in the European Union.

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compliance costs

The proposal, called ‘Business in Europe: Framework for Income Taxation’ (BEFIT), will simplify life for both businesses and tax authorities by introducing a new, single set of rules for determining the tax base of corporate groups operating in the EU.

EU companies increasingly operate across borders, but the current EU tax framework consists of 27 different corporate tax systems. This multiplicity of rules leads to fragmentation and is a serious obstacle to doing business in the internal market. Indeed, cross-border companies face high tax compliance costs as they have to comply with different legal frameworks. Furthermore, disparities between Member States create mismatches that can lead to double non-taxation and unwanted tax benefits. In this context, only an EU-wide initiative with a common set of rules can be effective.

This proposal seeks to find a way forward that reconciles all aspects by introducing a common framework for corporate income taxation in the Union. The common framework aims to simplify the tax environment in the internal market, as it will replace the current 27 different ways of determining the tax base for groups of companies with a consolidated turnover of more than EUR 750 million. The proposal does not exclude that smaller groups may also opt for BEFIT.

Consequently, the common framework should create a level playing field, increase legal certainty, reduce compliance costs, encourage companies to operate cross-border and stimulate investment and growth in the Union.

The package also includes a proposal to harmonise transfer pricing rules within the EU and ensure a more uniform approach, while at the same time increasing tax certainty by mitigating the risk of litigation and double taxation.

The proposals are expected to enter into force on 1 July 2028 (for BEFIT) and from 1 January 2026 (for the transfer pricing proposal).

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