The European Union is adopting a raft of new initiatives to reduce tax compliance costs and make rules easier for large, cross-border businesses.  

The European Union (EU) is hoping to make life easier for businesses who have operations in two or more bloc countries by introducing a standardised set of rules that will help tax authorities determine the tax base of these types of companies.  

Called Business in Europe: Framework for Income Taxation (BEFIT), the new rules aim to reduce compliance costs for large companies who have set-ups in more than one Member State by up to 65%, if all goes according to plan.  

HOW IT WORKS 

As coordination between 27 different tax systems has been tricky in the past, many companies have been reluctant to invest beyond their original borders, limiting growth and putting the EU at a marked disadvantage.  

Businesses who fall under the BEFIT regulations will now be able to calculate a standard tax base in accordance with a common set of rules, aggregated into one single tax base. Each BEFIT company will take the average of the three previous years’ taxes to calculate the percentage of the aggregated tax base they will be in going forward.  

According to the EU, “The new rules will be mandatory for groups operating in the EU with an annual combined revenue of at least €750 million, and where the ultimate parent entity holds at least 75% of the ownership rights or of the rights giving entitlement to profit.” 

Smaller organisations can opt in if they are willing to provide consolidated financial statements. 

TRANSFER PRICING 

The new package also includes a proposal aiming at harmonising transfer pricing rules within the EU and ensuring a common approach to the practice. Transfer pricing is an accounting practice that represents the price that one division in a company charges another division for goods and services provided in different states or countries.  

The proposal will increase tax certainty and mitigate the risk of litigation and double taxation. The directive will also restrict opportunities to use transfer pricing for aggressive tax planning purposes. 

Once the plan is fully adopted, it will go into effect from 1st January 2026. BEFIT’s start date is planned for 1st July 2028.  

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Photo source: François Genon, Unsplash