COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT Accompanying the documents Proposal for a Council Directive on Business in Europe: Framework for Income Taxation (BEFIT) and Proposal for a Council Directive on Transfer Pricing
Date: 2023-09-12
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: European tax cooperation, corporation tax, group of companies, multinational enterprise, parent company, regulation of transactions, tax collection, tax harmonisation, tax law, transfer pricing

EN 

  EN 

   EUROPEAN COMMISSION  Strasbourg, 12.9.2023  SWD(2023) 308 final  COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT REPORT  Accompanying the documents   Proposal  for a Council Directive     on Business in Europe: Framework for Income Taxation (BEFIT)     and     Proposal  for a Council Directive on Transfer Pricing {COM(2023) 532 final} - {SWD(2023) 309 final}  
 
 
Table of contents 

1. 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT ............................................................... 6 

1.1.  Business in Europe: Framework for Income Taxation (BEFIT) ....................... 6 
1.2.  Framework for transfer pricing ......................................................................... 9 
Introducing the initiative ................................................................................... 9 
1.3. 

2. 

PROBLEM DEFINITION ...................................................................................................................10 

2.1.  What are the problems? ................................................................................... 10 
2.2.  What are the problem drivers? ........................................................................ 12 
2.3.  What are the consequences of the problem? ................................................... 13 
2.3.1.  High tax compliance costs ........................................................................... 13 

2.3.2.  Distortions in the market that influence business decisions ........................ 14 

2.3.3.  Tax uncertainty and increase in disputes ..................................................... 15 

2.3.4.  Businesses are discouraged from expanding cross-border .......................... 19 

2.4.  How will the problem evolve? ........................................................................ 19 

3.  WHY SHOULD THE EU ACT? .........................................................................................................20 

3.1.  Legal basis ....................................................................................................... 20 
3.2.  Subsidiarity: Necessity of EU action ............................................................... 20 
3.3.  Subsidiarity: Added value of EU action .......................................................... 21 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? ................................................................................22 

4.1.  General objectives ........................................................................................... 23 
4.2.  Specific objectives ........................................................................................... 24 

5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? .....................................................................25 

5.1.  What is the baseline from which options are assessed? .................................. 26 
5.2.  Description of the policy options .................................................................... 26 
5.2.1.  BEFIT .......................................................................................................... 26 

5.2.2.  Common approach to transfer pricing ......................................................... 35 

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ............................................................36 

6.1.  Three Versions of the initiatives to be assessed .............................................. 36 
6.2.  Scope: How many company groups could be affected? .................................. 39 
Impact of the three Versions............................................................................ 40 
6.3. 

7.  HOW DO THE OPTIONS COMPARE? .............................................................................................50 

7.1.  Comprehensive Version .................................................................................. 51 
7.2.  Light Version ................................................................................................... 52 
7.3.  Composite Version .......................................................................................... 54 
7.4.  Overall comparison and Coherence with other EU policies ........................... 56 

8. 

PREFERRED OPTION .......................................................................................................................58 

8.1.  BEFIT .............................................................................................................. 58 

 
 
 
 
8.2.  Common approach to transfer pricing ............................................................. 60 
8.3.  REFIT (simplification and improved efficiency) ............................................ 61 
8.4.  Application of the ‘one in, one out’ approach ................................................. 61 

9.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED?...................................62 

9.1.  Monitoring ....................................................................................................... 62 
9.2.  Evaluation ........................................................................................................ 65 

ANNEX 1: PROCEDURAL INFORMATION .............................................................................................66 

ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT) .................................................72 

ANNEX 2A: TARGETED CONSULTATIONS – COMPILATION OF INTERVIEW REPORTS............82 

ANNEX 3: WHO IS AFFECTED AND HOW? .........................................................................................104 

ANNEX 4: ANALYTICAL METHODS ....................................................................................................109 

ANNEX 5: COMPETITIVENESS CHECK AND SME TEST ..................................................................117 

ANNEX 6: THE OECD TWO PILLAR APPROACH ...............................................................................119 

ANNEX 7: TRANSFER PRICING .............................................................................................................122 

ANNEX 8: TERRITORIAL IMPACT ASSESSMENT – NECESSITY CHECK ......................................136 

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Glossary 

Term or acronym 

Meaning or definition 

ATAD 

BEPS 

CbCR 

CCCTB 

CIT 

CJEU 

Anti-Tax Avoidance Directive 

OECD/G20 Base Erosion and Profit Shifting Project 

Country-by-Country Reporting 

Common Consolidated Corporate Tax Base 

Corporate Income Tax 

Court of Justice of the European Union 

Consolidated financial accounting 
statements 

These  are  financial  statements  of  a  group  company  in  which  the 
financial  information  of  the  parent  company  and  its  subsidiaries  are 
presented as those of a single economic entity. 

Deduction 

GAAP 

GDP 

GloBE Rules 

IFRS 

Intangible assets 

Inventory 

MAP 

MNE 

OECD   

Deduction  denotes,  in  an  income  tax  context,  an  item  which  is 
subtracted  (deducted)  in  arriving  at,  and  which  therefore  reduces, 
taxable income.1 

Generally Accepted Accounting Principles 

Gross Domestic Product 

Global Anti Base Erosion Rules 

International Financial Reporting Standards 

An intangible asset is an asset that is  not physical in nature. Examples 
include patents, copyright, goodwill, trademarks, and software. 

Inventory or stock refers to goods that a business holds for the goal of 
resale, production or utilisation 

Mutual Agreement Procedures 

Multinational enterprise 

Organisation for Economic Co-operation and Development 

Profit distributions 

A pay out of cash or property from a corporation to a shareholder. 

Provisions 

SME 

Tax adjustments 

Provisions  refer  to  any  funds  set  aside  from  company  profits  to  help 
budget for liabilities or obligations 

Small and Medium-Sized Enterprise 

Taxpayers can subtract certain expenses, payments, contributions, fees, 
etc. from their total income 

Tax depreciation 

A  tax  deduction  that  allows  the  taxpayer  to  recover  the  cost  or  other 

1 https://www.oecd.org/ctp/glossaryoftaxterms.htm 

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Tax treaty 

Transfer pricing 

Unilateral downward adjustments 

basis of certain property over the time you use the property. 

An  agreement  between  two  (or  more)  countries  for  the  avoidance  of 
double  taxation.  A  tax  treaty  may  be  titled  a  Convention,  Treaty  or 
Agreement.2 

Transfer  pricing  refers  to  the  terms  and  conditions  surrounding 
transactions  within  a  multi-national  company.  This  is  explained  in 
Annex 7.  

In  cross-border  transactions,  a  downward  adjustment  is  considered 
“unilateral” when it is applied by one tax authority, whether or not there 
has  been  a  corresponding  upward  adjustment  has  been  applied  by  the 
State  where  the  other  party  to  the  transaction  is  subject  to  tax.  

2 https://www.oecd.org/ctp/glossaryoftaxterms.htm 

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1. 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT 

As President Von der Leyen in her 2022 State of the Union Address said, “We need an enabling 
business environment (…) as our future competitiveness depends on it”.  It was announced in the 
Communication  on  Business  Taxation  for  the  21st  Century  in  May  20213  that  the  European 
Commission, drawing inspiration from the achievements in the context of the OECD/G20 Inclusive 
Framework  Two-Pillar  proposals,  will  table  a  legislative  proposal  for  a  common  corporate  tax 
framework  for  groups  of  companies  in  2023.  This  is  also  included  in  the  Commission  Work 
Programme 20234, and it could be relevant from an own resource perspective, as set out in the 2021 
Communication on the next generation of own resources for the EU Budget5.  

To address the current challenges related to corporate taxation in the  internal market, particularly 
with  regard to  corporate groups, this impact  assessment covers a proposal  known as  ‘Business  in 
Europe: Framework for Income Taxation’, or ‘BEFIT’, and a complementary  proposal to introduce 
a common framework for transfer pricing Therefore, the impact assessment will look at: 

a)  laying down of a common set of rules for computing the tax base of primarily large groups 

of companies in the EU (BEFIT) and,  

b)  integrating  key  transfer  pricing  principles,  covering  all  transactions  between  associated 
enterprises, into EU law, to put forward certain common approaches for Member States. 

1.1. 

 Business in Europe: Framework for Income Taxation (BEFIT) 

BEFIT is not a new tax, but a harmonised framework to determine EU businesses’ taxable income 
in  the  Member  States  where  they  are  established.  The  rationale  for  this  new  initiative  is 
threefold.  

Firstly, the idea to develop a harmonised corporate tax framework in support of the internal 
market has consistently been part of the EU policy history and first appeared in policy documents 
of the European Economic Community as early as the 1960s.  

As  we  celebrate  30  years  of  the  internal  market,  there  are  still  no  common  rules  for 
calculating the taxable income of EU businesses, but 27 different national systems, making it 
difficult  and  costly  for  companies  to  operate  and  grow  and  fully  benefit  from  the  internal 
market. Complexity increases tax uncertainty and tax compliance costs as soon as businesses start 
operating in more than one Member State. This unnecessarily discourages cross-border investment 
in  the  internal  market.  It  also  puts  EU  businesses  at  a  competitive  disadvantage,  especially  when 
compared  to  businesses  operating  in  markets  of  a  comparable  size  elsewhere  in  the  world.  The 
discrepancies in  the interaction of 27 corporate tax systems  create an uneven playing field  which 
can cause distortions in the market and influence business decisions in investment and the financing 
of projects.  It  also  leads to  loopholes and complexities that open opportunities for  aggressive tax 
planning or result in double or over-taxation. Simpler tax rules could help stimulate investment and 

3 COM(2021) 251 final.  
4https://commission.europa.eu/strategy-documents/commission-work-programme/commission-work-programme-
2023_en 
5 COM(2021) 566 final. 

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growth in the EU by reducing cross-border obstacles and freeing resources currently used for tax 
compliance towards economic activity. In an increasingly globalised and digitalised economy and 
an ever-closer integrated internal market, this remains of paramount importance.  

Secondly,  valuable  insights  gained  from  many  years  of  Council  negotiations  and  related 
analysis of taxation files can now be used to design BEFIT. Long negotiations on files like the 
first Parent-Subsidiary Directive (proposed in 19696 and adopted in 19907), the Interest & Royalties 
Directive (first proposed in the early 1990s8 and adopted in 20039), and on the 201110 and 201611 
CCCTB  proposals,  triggered  valuable  detailed  technical  analysis  and  a  thorough  exchange  of 
views. This contributed to enhancing EU expertise in the field and about half of the measures of the 
ATAD12  sprang  from  these  discussions.  The  discussions  of  the  2011  and  2016  proposals 
concentrated on several items of the tax design that determine around 90% of the tax base.  

It  should  be  noted,  though,  that  Member  States  also  converged  considerably  in  their  approaches 
during those negotiations. For example, the use of financial accounting statements to calculate the 
taxable base, as envisaged by BEFIT, reflects this work by Member States. The same approach can 
be  found  in  the  Pillar  2  Directive,  which  the  Member  States  unanimously  adopted  in  2022  and 
which follows the agreement reached internationally on the Two-Pillar Solution of the OECD/G20 
Inclusive Framework13. Pillar 2 sets a minimum effective corporate tax rate and to determine this, 
the  tax  base  is  calculated  starting  from  the  consolidated  financial  statements  of  the  group.  The 
BEFIT  proposal  takes  inspiration  from  this  breakthrough,  building  on  concepts  with  which  both 
companies and Member States are already familiar to deliver further simplification for businesses 
in the EU14.  

In addition, key concepts of the previous corporate tax initiatives have in the meantime been taken 
up in other EU and international contexts. In 2020, the Council, the Parliament and the Commission 
agreed that a common corporate tax base could be the basis for an additional new own resource that 
the Commission will propose.15 In 2021, the Member States agreed to use formulary apportionment 

6 COM/1969/6/FINAL, OJ C 39, 22.3.1969, p. 7–9.  
7 Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent 
companies and subsidiaries of different Member States. 
8 SEC(90) 601 final; COM/90/571FINAL, OJ C 53, 28.2.1991, p. 26–29.  
9  Council  Directive  2003/49/EC  of  3  June  2003  on  a  common  system  of  taxation  applicable  to  interest  and  royalty 
payments made between associated companies of different Member States.  
10 COM(2011) 121/4 final. 
11 COM(2016) 685 final; COM(2016) 683 final. 
12 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly 
affect the functioning of the internal market.  
13 
https://www.oecd.org/tax/beps/statement-on-a-two-pillar-solution-to-address-the-tax-challenges-arising-from-the-
digitalisation-of-the-economy-october-2021.pdf -138 member jurisdictions (including all Member States that are part of 
the  OECD/G20  Inclusive  Framework)  have  agreed  to  the  Statement  on  a  Two-Pillar  Solution  to  Address  the  Tax 
Challenges Arising from the Digitalisation of the Economy. 
14 For a more detailed explanation on the two Pillars and their relations with BEFIT, see Annex 6. 
15 Interinstitutional Agreement between the European Parliament, the Council of the European Union and the European 
Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management, as well 
as on new own resources, including a roadmap towards the introduction of new own resources. 

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for  re-allocating  taxable  profits  as  part  of  Pillar  1  of  the  agreed  statement  on  the  Two-Pillar 
Solution of the OECD/G20 Inclusive Framework16,17.  

Thirdly,  the  context  for  EU  tax  policy  has  changed  significantly.  Technological  progress  and 
enhanced  administrative  capacity  of  Member  State  tax  authorities  have  made  the  prospect  of 
implementing and managing an EU-wide tax framework a more efficient and feasible proposition. 
Furthermore,  in  the  wake  of  the  COVID-19  crisis  and  in  the  context  of  economic  uncertainty 
caused by the Russian war of aggression against Ukraine, reliable and sustainable public revenues 
are  more  important  than  ever.  Other  megatrends  such  as  globalisation,  digitalisation,  climate 
change,  environmental  degradation,  an  ageing  population,  and  a  transforming  labour  market  also 
require  Member  States  to  reflect  on  their  tax  mix  and  their  priorities.  For  instance,  while 
globalisation and digitalisation can contribute to economic growth and help reduce tax compliance 
costs,  they  may  create  new  tax  planning  opportunities  to  manipulate  and  erode  the  tax  base.  In 
response, the EU and Member States have progressively adopted a variety of anti-tax evasion and 
avoidance  measures.  While  these  have  been  successful  in  addressing  specific  issues,  they  have 
added layers of complexity to Member States tax systems that businesses have to navigate.  

In view of the above, it has become more pressing for EU tax policy to ensure that Member 
State tax bases are robust, sustainable and protected against abuse while reducing complexity 
in the internal market. Accordingly, the Commission intends to propose a new, comprehensive, 
more straightforward, and effective reform that will provide the Member States with a corporate tax 
framework that is fit for this purpose. The proposal will integrate the lessons learned from previous 
initiatives and reflect the changed context and tax policy landscape. More specifically, it will build 
on the following elements of the design of the two Pillars. The BEFIT rules for the computation of 
the tax base can: (i) draw inspiration from the way that the Pillar 2 Directive computes a tax base 
for the purpose of verifying whether corporate tax was due at the minimum effective rate; and (ii) 
build on the agreed approach of Pillar 1 for the allocation of taxable profits. These significant shifts 
in  the  structure  of  international  tax  rules  in  recent  years  make  the  key  building  blocks  of  BEFIT 
necessary to implement18.  

Since  the  Commission  announcement  in  May  2021,  the  initiative  has  generally  received  support 
from civil society. The European Parliament supported the rationale of the Commission’s proposal 
on  BEFIT  when  calling  for  the  adoption  of  new  legislative  proposals  in  2022-202319.  BEFIT 
follows up on requests made by many stakeholders in the field of taxation at the Conference on the 
Future of Europe. Finally, the Council of the European Union and the European Parliament agreed 

16  Pillar  1  is  the  reallocation  of  taxing  rights  to  market  jurisdictions  based  on  a  formula.  The  OECD  is  currently 
finalising the technical work to develop a Multilateral Convention to give effect to Pillar 1 rules. The Commission is 
committed to present a legislative proposal to implement Pillar 1 within the EU once the OECD work are concluded. 
For a more detailed explanation of the OECD Two Pillar Approach and its interactions with BEFIT, see Annex 6. 
17 Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy – 
8 October 2021, OECD/G20 Base Erosion and Profit Shifting Project.  
18 For a more detailed explanation of the OECD Two Pillar Approach, please see Annex 6. 
19  European  Parliament  resolution  of  10  March  2022  with  recommendations  to  the  Commission  on  fair  and  simple 
taxation supporting the recovery strategy (EP follow-up to the July Commission’s Action Plan and its 25 initiatives in 
the area of VAT, business and individual taxation) (2020/2254(INL)) 

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as part of the 2020 Interinstitutional Agreement20 that the Commission will present a proposal for 
new own resources linked to a common corporate tax base, which could build on BEFIT.  

1.2. 

Framework for transfer pricing 

Most  Member  States  are  also  members  of  the  Organisation  for  Economic  Cooperation  and 
Development  (OECD)  and  are  therefore  committed  to  follow  the  OECD  principles  and 
recommendations.  Article  9  (Associated  Enterprises)  of  the  OECD  Model  Tax  Convention  on 
Income  and  on  Capital  sets  out  the  conditions  for  primary  adjustments  and  for  corresponding 
adjustments where economic double taxation arises. Although article 9 endorses the application of 
the arm’s length principle it does not set out detailed transfer pricing rules.  

Over  time  the  OECD  has  developed  the  so-called  OECD  Transfer  Pricing  Guidelines  for 
Multinational Enterprises and Tax Administrations (OECD TP guidelines) which provide guidance 
on  the  meaning  and  application  of  the  arm’s  length  principle,  primarily  for  OECD  member 
countries  to  use  in  resolving  transfer  pricing  disputes  under  tax  treaties.  Out  of  the  27  Member 
States,  23  are  member  of  the  OECD  members  (Malta,  Cyprus,  Bulgaria  and  Romania  are  not 
members of the OECD) and therefore, politically committed to follow the OECD TP guidelines to 
interpret the arm’s length principle. However, despite the political commitment, the status and role 
of the OECD TP guidelines currently differs from Member State to Member State. In addition,  at 
the  level  of  the  Union  the  transfer  pricing  rules  are  currently  not  harmonised  through 
legislative  acts.  The  domestic  legislation  in  all  Member  States  provides  for  some  degree  of  a 
common approach on the basic principles by following the arm’s length principle, but the specific 
rules  and  applications  are  not  identical  across  Member  States.  This  causes  profit-shifting  and  tax 
avoidance opportunities, litigation and double taxation, as well as high tax compliance costs. 

1.3. 

 Introducing the initiative 

The  initiative  is  twofold  and  provides  a  holistic,  coordinated  and  simplified  framework  to 
determine  businesses’  taxable  income  across  the  EU.  More  specifically,  the  proposals  involve  a 
common set of rules for the corporate income tax base of companies within large groups. This is a 
new framework that replaces the current 27 different ways for determining the taxable base in the 
national corporate tax systems for the groups of companies that fall within its scope. It will consist 
of common rules for computing the tax base of each group member and subsequently, aggregating 
and allocating the corporate tax base of the group across the EU. The transfer pricing aspects of this 
initiative are meant to endorse the arm’s length principle and the OECD transfer pricing guidelines 
in EU legislation and also lay a steppingstone for Member States to agree to common approaches to 
transfer  pricing21  in  the  future.  The  aim  is  to  ensure  consistency  in  the  way  Member  States  treat 

20 Interinstitutional Agreement  of 16 December 2020  between the European Parliament, the  Council of the European 
Union  and  the  European  Commission  on  budgetary  discipline,  on  cooperation  in  budgetary  matters  and  on  sound 
financial  management,  as  well  as  on  new  own  resources,  including  a  roadmap  towards  the  introduction  of  new  own 
resources, EUR-Lex - 32020Q1222(01) - EN - EUR-Lex (europa.eu). 
21  Transfer  pricing  refers  to  the  terms  and  conditions  surrounding  transactions  within  a  multi-national  company.  It 
requires corporate taxpayers to determine the price at which transactions between associated enterprises must be set, in 
order  to  reflect  the  value  of  a  comparable  transaction  between  unrelated  parties.  In  this  way,  the  income  should  be 
allocated in a manner that is reasonable in the market. Currently, each Member State has its own transfer pricing rules 
and practices. This is explained in more detail in Annex 7.  

9 

 
 
 
transactions  between  associated  enterprises  and,  thereby,  prevent  profit  shifting,  increase  tax 
transparency, and reduce tax compliance and litigation costs for companies. 

While the approach is clear, the specific design for the common framework on BEFIT and transfer 
pricing  is  associated  with  various  policy  options.  This  report  assesses  the  impact  of  the  policy 
options  by  reference  to  three  combinations  of  the  options  under  each  of  the  two  aspects  and 
concludes on the preferred Version (preferred package of options). 

2.  PROBLEM DEFINITION 

This section defines and analyses the problems and their drivers and assesses the evolution of these 
problems  in  the  absence  of  EU  policy  intervention.  The  ‘Problem  tree’  in  Figure  1  presents  the 
context, the drivers, the problem and the direct and indirect consequences that the initiative will be 
designed to address. 

2.1.  What are the problems? 

The  current  systems  of  corporate  income  taxation  in  the  EU  give  rise  to  high  complexity  and  an 
uneven playing field for businesses. It was confirmed by stakeholders in the public consultation and 
the Call for evidence that this translates into businesses facing  high  compliance costs, barriers  to 
cross-border  operations,  high  risks  of  double  or  over-taxation  leading  to  tax  uncertainty  and 
frequent,  time-consuming  legal  disputes.  The  stakeholder  consultations  are  summarised  in  the 
synopsis  report  in  Annex  2.  For  instance,  a  large  business  association  explained  that  while  the 
international community cooperated on combatting tax fraud and evasion and EU directives aim to 
coordinate  and  strengthen  tax  rules,  the  implementation  has  not  been  consistent  and  coordinated 
among  Member States  which has led to  misaligned tax bases in  the  EU, increased administrative 
burdens and significant tax compliance costs for businesses. A large firm also pointed out that tax 
disputes related to intra-EU transfer pricing and withholding tax elimination have increased.  

These tax barriers for businesses impede the proper functioning of the internal market and hamper 
the prospect for achieving its potential in terms of efficiency gains. As a result, the competitiveness 
of  the  internal  market  is  undermined.  The  problem  that  the  initiative  aims  to  address  is  therefore 
complexity and an uneven playing field and its inherent consequences as detailed below.  

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Figure 1 – Problem Tree 

Tax complexity is an inherent feature of 27 jurisdictions, each designing their own rules according 
to  national  or  regional  circumstances  and  preferences.  As  governments  try  to  adapt  to  new 
economic  realities  (e.g.,  globalisation  and  digitalisation)  and  to  the  emergence  of  new  business 
models, the fragmented response among Member States has led compliance with more than one tax 
system  in  the  internal  market  to  become  more  complex.  In  addition,  the  unpredictability  and 
inconsistency  of  tax  administration  practices  across  27  Member  States,  as  well  as  the  limited 
effectiveness of dispute prevention and resolution mechanisms, contribute to tax complexity.  

Recent research, including the Tax Complexity Index, indicates that tax complexity has increased 
significantly  in  the  past  years.22  In  addition  to  the  multitude  of  design  rules  of  each  system  as 
described  below,  the  increase  can  be  in  part  explained  by  the  introduction  at  global  level  of 
measures to tackle tax fraud and evasion and aggressive tax planning. Transfer pricing regulations, 
in particular, appear to drive much of the complexity which relates to documentation requirements 
and  the  ambiguity  and  interpretation  of  these  regulations.  Moreover,  the  complexity  of  corporate 
tax  systems  is  further  associated  with  the  multitude  of  legal  provisions  on  anti-abuse  rules, 
investment incentives and corporate reorganisations. Recent policy responses to both the  COVID-
19 crisis and to the economic uncertainty caused by the Russian war of aggression against Ukraine 
may add to the complexity.  

A  related  problem  is  the  uneven  playing  field.  Beyond  corporate  tax  rates  and  incentives, 
corporate tax systems in the EU have divergent features, for instance in the field of tax depreciation 
or tax-deductible items, and businesses operating across the EU may face stricter or more flexible 
tax  interpretations  depending  on  the  Member  State.  Each  of  these  systems  lays  down  disparate 
administrative requirements for compliance and will interact differently with other tax systems, for 
instance,  by  way  of  a  multitude  of  bilateral  tax  treaties.  It  follows  that  the  resulting  tax  liability 

22  See  for  example,  Hoppe,  Schanz,  Sturm,  Sureth-Sloane  (2021):  The  Tax  Complexity  Index  –  A  Survey-Based 
Country  Measure  on  Tax  Code  and  Framework  Complexity,  European  Accounting  Review,  DOI: 
10.1080/09638180.2020.1852095. 

11 

 
 
 
 
computations  and  the  required  resources  to  comply  with  tax  obligations  tend  to  vary  from  one 
Member State to  another. These differences lead to an uneven playing field for businesses across 
the EU.  

2.2.  What are the problem drivers? 

Different national tax systems and many bilateral tax treaties  

Corporate income taxation in the EU is characterised by 27 different corporate income tax systems 
and 27 distinct tax administrations. Each of these systems computes the national corporate tax base 
of businesses that are established in the respective Member State. A business that operates in all 27 
Member States  must therefore  have the capacity to  cope within 27 systems  of corporate tax laws 
before  it  can  file  its  27  different  tax  returns.  In  addition,  requirements  and  procedures  for  filing 
corporate income tax returns vary across Member States.   

All systems have one common aim, i.e., to define the rules to arrive at the taxable results (profit or 
loss) for each taxpayer. Gross income (revenues) is generally taken as the starting point, on which 
tax laws allow certain expenses to be deducted. Among these deductible expenses, tax depreciation 
and  amortisation  of  fixed  assets  generally  have  the  largest  impact.  Additionally,  there  are 
adjustments  for  items  of  the  base  which  are  relevant  for  longer  than  a  year,  such  as  long-term 
contracts  or  provisions  for  future  risks,  and  measures  to  take  account  of  inflows  and  outflows  of 
passive  income,  e.g.,  dividends,  interest,  royalties  and  rentals.  While  the  aim  is  the  same,  the 
application of these items (e.g., rates, caps) can vary substantially across Member States. By way of 
example,  as  shown  in  the  Annual  Report  on  Taxation  202323,  statutory  tax  rates  vary  among 
Member States from 10% to 31.5%. The model based effective tax rates which consider, amongst 
other  things,  tax  support  schemes  put  forward  by  governments  vary  from  9%  to  29%.  The  same 
Report  shows  how  various  tax  incentives  vary  across  countries.  Depreciation  rates  can  vary 
significantly across countries by type of asset:  e.g., just for fixed tangible assets it ranges from  2 
years  to  10  years  and  some  countries  use  the  so-called  useful  life  with  minima  and  sometimes 
maxima, while others use accelerated methods.  

For cross-border businesses, which have income and expenses in multiple countries, each country 
also has to apply a method to determine which part of the income they will tax, and whether they 
allow  foreign  expenses  to  be  deducted.  The  common  method  at  national  level  for  allocating  the 
income  of  cross-border  businesses  is  transfer  pricing.24  Each  country  currently  sets  a  method 
nationally,25 which means the same income may be taxable multiple times (or may not be taxed at 
all).26  Foreign  expenses,  on  the  contrary,  are  rarely  deductible.  Cross-border  loss  relief  is  largely 
absent from national tax systems.  

See 

here 

https://taxation-customs.ec.europa.eu/taxation-1/economic-analysis-taxation/annual-report-

23 
taxation_enAnnual Report on Taxation (europa.eu) for a detailed analysis of tax systems across Member States 
24 Transfer pricing is explained in Annex 7.  
25 With the exception of common requirements that stem from CJEU case law, in the case of transfer pricing.  
26 This is regardless of the method chosen. Double taxation and double non-taxation are possible when countries have 
different  transfer  pricing  practices,  when  one  country  uses  transfer  pricing  and  another  uses  a  different  allocation 
method, as well as when countries use different formulae.  

12 

 
 
 
Mismatches in the interaction between different national tax systems can result in double or over-
taxation,  or  tax  evasion  and  avoidance  opportunities.  Countries  have  also  adopted  a  range  of 
measures  to  address  these  issues,  such  as  bilateral  treaties,  exchange  of  information,  anti-abuse 
measures,  and  dispute  prevention  and  resolution  provisions.  These  are  therefore  also  common 
features  in  national  tax  systems,  but  as  researchers  indicated  in  the  public  consultation,  a 
fundamental  concern  remains  regarding  cross-border  inconsistencies  compared  to  the  consistency 
of tax regimes for purely domestic situations.   

In sum, although each of the national systems may feature similar elements for calculating the tax 
base,  the  legal  qualification  and  practical  application  can  differ  widely.  National  rules  have  had 
different trajectories, have been subject to frequent changes to address variable political objectives, 
and  although  bilateral  tax  treaties  and  anti-abuse  measures  are  often  comparable  and  based  on 
model  rules,  they  have  resulted  in  a  multitude  of  rules  that  differs  for  each  country.  Hence, 
businesses  that  operate  in  a  cross-border  environment  involving  numerous  Member  State 
jurisdictions do not  only  have to  comply  with  a  complex combination of national  legislation, but 
they have to deal with a bilateral international approach to allocating income through tax treaties. 
This illustrates only part of the source of complexity that companies must deal with.  

For some companies, the need to navigate such complexity may constitute  a significant barrier to 
do  business.  Almost  two  thirds  of  the  public  consultation  survey  respondents  agree  or  strongly 
agree  that  the  current  situation  with  27  different  national  corporate  tax  systems  gives  rise  to 
challenges  in  the  internal  market.  The  next  sections  look  at  the  problem  and  its  consequences  in 
more detail. 

2.3.  What are the consequences of the problem? 

There  are  several  negative  direct  and  indirect  consequences  arising  from  tax  complexity  and  an 
uneven playing field.  

2.3.1.  High tax compliance costs 

The variety of features that permeate national tax systems, the discrepancies in the application and 
interpretation  of  such  features,  as  well  as  differences  in  general  administrative  procedures  across 
Member  States  have  an  impact  on  the  tax  compliance  burden.  A  taxpayer  has  to  bear  an  overall 
burden  from  the  tax  system,  which  consists  of  i)  the  actual  amount  of  tax  due,  plus  ii)  the  costs 
incurred  to  comply  with  the  applicable  tax  regulations  (e.g.,  costs  associated  with  legal  and 
accounting advice and time to file tax returns which multiply with the number of countries where 
the  company  has  its  activity).  From  the  economic  perspective  of  a  taxpayer,  administrative  costs 
related to tax compliance can be regarded as an efficiency loss. This is because administrative tax 
compliance  costs  reduce  the  profits  of  businesses  and  increase  the  costs  for  tax  administrations 
without  leading  to  higher  tax  revenues.  Complex  tax  compliance  also  creates  broader  economic 
costs and inefficiencies that do not immediately materialise as expenses: legal uncertainty and non-
transparent  systems  can  be  significant  obstacles  to  investment  and  thus  hinder  economic  growth. 
Compliance costs can, therefore, be considered as an inherent waste of resources and a ‘deadweight 
loss’ which is undesirable for the entire society.  

Even  if  one  looks  only  at  the  directly  related  expenses,  tax  compliance  costs  for  businesses  are 
found  to  be  high.  A  comprehensive  survey-based  study  presenting  an  extensive  analysis  of  the 
administrative costs to comply with tax obligations (tax compliance costs) has been carried out on 

13 

 
 
behalf the European Commission (2022).27 This study estimates the administrative burden28 of tax 
compliance for small and large businesses in Member States and the United Kingdom and finds that 
‘differences in the broader public administration of the countries do have an impact on the burden 
of  compliance’.  In  general,  businesses  incur  an  annual  cost  in  meeting  their  tax  compliance 
obligations  that  amounts  to  1.9%  of  their  turnover.  Businesses  in  these  28  countries  spend  an 
estimated  annual  amount  of  around  EUR  204  billion  to  comply  with  their  tax  obligations  (tax 
compliance costs for all types of taxes). Furthermore, tax compliance costs have not declined over 
time. Total corporate tax compliance costs increased significantly (i.e., 114%) from 2014 to 2019.  

Tax compliance costs are positively correlated with cross-border activities. This is because in such 
a context, two or more different sets of national tax rules would have to be applied in addition to 
possible  common  European  and  international  norms.  To  demonstrate,  a  multivariate  regression 
analysis was carried out on the above-mentioned survey’s firm-level data. This is outlined in Annex 
4. It shows that, everything else being equal29, firms crossing borders will have significantly higher 
CIT  related  compliance  costs.  However,  the  effect  of  going  international  on  compliance  costs 
strongly interacts with the availability of a ‘simplified tax regime’ (as explained in Annex 4). Those 
are tax rules which are less complicated and easier to comply with, relative to regular CIT tax rules. 
Cross-border operating firms could reduce their CIT related compliance costs significantly only if 
they are subject to a simplified tax scheme. In this case, their compliance costs are one third below 
the  cost  of  those  firms  which  are  not  subject  to  simplified  schemes,  all  other  firm  characteristics 
being  the  same.  Simplified  tax  rules  therefore  offer  a  significant  premium  for  firms  operating  in 
more than one jurisdiction. This argues for a comprehensive EU-wide corporate tax reform, making 
some tax rules common to groups of firms and making it more straightforward and less costly for 
firms to comply with these rules.   

2.3.2.  Distortions in the market that influence business decisions  

The 2019 Flash Eurobarometer 507 “Businesses’ attitudes towards corruption in the EU”30 looked 
at  how  respondents  agree  with  the  statement  “The  complexity  of  administrative  procedures  is  a 
problem when doing business”. For the majority of Member States (17/27) more than 50% of their 
businesses agree with this statement, for several (12) it is more than 60% and in 4 Member States 
more than 75% of businesses agree with this statement. To the extent that tax compliance costs are 
associated with administrative procedures and with calculating and filing tax returns, these figures 
could be a proxy for how businesses feel about tax compliance costs and in the way they influence 
businesses decisions. 

Indeed,  as  businesses  grow  larger  and  expand  their  operations,  they  need  to  make  investment 
decisions, including on where to continue their expansion. In an increasingly integrated economy, 
such  decisions  can  be  numerous.  The  statistics  of  Country-by-Country  Reporting  (CbCR),  for 

27  European  Commission,  Tax  Compliance  costs  for  SMEs:  An  update  and  complement”  Final  Report  by  VVA  and 
KPMG, Luxembourg: Publications Office of the European Union, 2022. 
28  The  administrative  costs  consist  of  two  different  cost  components:  the  business-as-usual  costs  and  administrative 
burdens. While the business-as-usual costs correspond to the costs resulting from collecting and processing information 
that  would  even  be done  in  the  absence  of  any  legislation,  administrative  burdens  stem  from  the  part  of  the  process 
which is done solely because of a legal obligation.  
29 The analysis controls for different firm sizes and differences firms’ country- and sector-related specificities. 
30 See Businesses' attitudes towards corruption in the EU - Publications Office of the EU (europa.eu) 

14 

 
 
 
example, reveal that in 2018 a total of 29,500 MNE groups worldwide reported operations affecting 
174,800  entities  in  the  EU.  Thus,  if  one  counts  only  the  entities  involved  in  CbCR,  there  is  an 
average of at least six EU entities per group, so that MNEs would on average have to comply with 
six different sets of corporate income tax rules.  

These  businesses,  if  and  when  they  invest,  have  to  undergo  costly  and  time-consuming 
administrative  procedures  with  the  tax  authority  of  each  jurisdiction  where  they  have  a  taxable 
presence.  As  said,  the  overall  tax  liability  of  groups  usually  has  to  be  established  in  accordance 
with  a  complex  mix  of  national  tax  rules  which,  depending  on  the  international  presence  of  the 
group, can engage more than one national system. This does not only require businesses to consider 
different tax rates and incentives, but also up to 27 different tax bases in the EU, with sometimes an 
unclear compilation of exemptions and tax expenditures. In addition, the tax treatment of a business 
can,  independently  from  tax  rates,  vary  significantly  depending  on  the  combination  of  Member 
States in  which it is  active, and a study has found that compliance  costs in  countries  with  higher 
compliance  costs  can  be  up  to  3  times  higher  than  in  countries  with  the  lowest  costs31.  This 
complexity increases with the number of Member States where businesses are active, which can be 
many for large groups.  

Consequently, the design of each national tax system can influence the decision to invest and where 
and how much to invest, and in turn, it affects the level playing field in an integrated market. Put 
simply,  some businesses may be inclined to invest in  a particular Member State based mainly  on 
the  applicable  corporate  tax  system,  rather  than  on  non-tax  but  important  economic  factors  (e.g., 
skills, infrastructure, etc.), which can result in economic inefficiencies.  

These  differences  could  be  associated  with  the  observed  uneven  distribution  of  net  inward  and 
outwards  FDI  stock  as  a  share  of  GDP  across  the  EU  (Annual  Report  on  Taxation,  2023).  As 
explained  there  in  more  detail,  in  some  countries  the  FDI  stock  can  be  a  lot  higher  compared  to 
their  GDP.  While  much  may  be  explained  by  economic  reasons,  part  may  be  explained  by  tax 
complexity and differences in tax treatment.   

In sum, while in many other areas, there is significant progress in EU law to ensure that businesses 
can operate in the internal market under common standards, the proliferation of different corporate 
tax systems can still lead to distortions in investment decisions by businesses. By contrast, if there 
was a single set  of corporate tax rules  in  the  internal  market for the computation of the tax base, 
such distortions could be significantly mitigated or avoided altogether.  

2.3.3.  Tax uncertainty and increase in disputes  

Another consequence of complexity is tax uncertainty and the risk of double taxation and/or over-
taxation,  which  results  in  tax  disputes.  This  section  first  describes  how  double  and  over-taxation 
remain a problem. Next, it looks at legal rulings and the number of disputes to demonstrate that this 
remains a significant challenge to companies with associated costs.   

31 See FISC subcommettee SME tax compliance costs - IPOL_STU(2023)642353_EN.pdf 

15 

 
 
 
2.3.3.1. Double taxation 

Double taxation can occur in the context of cross-border business restructurings and payments for 
which the state of destination does not fully relieve the tax paid in the state of origin. The absence 
of  clear  obligations,  in  particular  when  it  comes  to  withholding  taxes  and  taxes  on  capital  gains, 
may also give rise to different interpretations resulting in double taxation.   

Another area with an inherent risk of double taxation is transfer pricing. According to the current 
international standard, i.e., the arm’s length principle, cross-border transactions between entities of 
the same group must be taxed on the same basis as comparable transactions between independent 
enterprises  under  comparable  conditions.  While  double  non-taxation  in  this  area,  an  equally 
undesired  outcome,  is  primarily  dealt  with  through  rules  against  aggressive  tax  planning,  double 
taxation  could  occur  if  one  Member  State  unilaterally  adjusted  the  price  set  by  a  company  on  a 
cross-border  intra-group  transaction  upwards,  without  the  other  Member  State  making  an 
appropriate  corresponding  adjustment  downwards.  Feedback  from  the  public  consultation  also 
included  that  the  complexities  of  transfer  pricing  may  even  result  in  higher  taxes  for  businesses 
than estimated. This also leads to tax disputes.32 In the impact assessment to the Directive on tax 
dispute resolution mechanisms,33 the total amount of tax involved in disputes pending at the end of 
2014 was estimated at EUR 8 billion in the area of transfer pricing, whereas the total amount of all 
cases was EUR 10.5 billion. This corresponded to 3% of the total corporate income tax levied in the 
EU, which can give an idea of the magnitude of this issue. Recent studies also confirm that legal 
costs  and  the  unilateral  application  of  transfer  pricing  rules  negatively  impact  investment  and 
distort capital allocation.34 

Regarding the overall prevalence of double taxation, 94% of corporate taxpayers that participated 
in a public consultation by the European Commission indicated that they had encountered a double 
taxation  dispute.35  This  showed  that,  despite  the  existence  of  EU  law  instruments  that  aim  to 
address  double  taxation36  and  bilateral  tax  treaties37,  the  risk  of  double  taxation  is  a  significant 
problem  for  many  businesses  with  cross-border  activity.  While  bilateral  tax  treaties  can  resolve 
some of the double taxation occurrences, the heterogeneity among these treaties and differences in 

32 For numbers, see: https://taxation-customs.ec.europa.eu/taxation-1/statistics-apas-and-maps-eu_en 
33 SWD(2016) 343 final.  
34  E.g.,  R.  De  Mooij  and  L.  Liu  (2018),  ‘At  a  cost:  the  real  effects  of  transfer  pricing  regulations’;  S.  L.  Teles,  N. 
Riedel, K. Strohmaier (2022) ‘On the Real Consequences of Anti-Profit Shifting Laws: Transfer Price Documentation 
Rules and Multinational Firm Investment’.  
35  European  Commission  (2011).  Summary  Report  of  the  Responses  Received  to  the  Commission's  Consultation  on 
Double Taxation Conventions and the Internal Market See section "Main Conclusions" - Annex A.  
36 The legal instruments applicable in this area are: COUNCIL DIRECTIVE 2011/96/EU of 30 November 2011 on the 
common  system  of  taxation  applicable  in  the  case  of  parent  companies  and  subsidiaries  of  different  Member  States 
(recast); COUNCIL DIRECTIVE 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest 
and  royalty  payments  made  between  associated  companies  of  different  Member  States;  COUNCIL  DIRECTIVE 
2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers, divisions, partial divisions, 
transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the 
registered office of an SE or SCE between Member States (codified Version). 
37  A  tax  treaty,  also  called double  tax  agreement  (DTA)  is  an  agreement between  two  countries  to  avoid  or  mitigate 
double taxation. Such treaties may cover a range of taxes; however, the most common ones are in relation to income 
and capital taxes, including in respect of companies. Tax treaties tend to reduce taxes of one treaty country for residents 
of the other treaty country to reduce double taxation of the same income. Many tax treaties were already in place when 
the public consultation was conducted in 2010.  

16 

 
 
 
their  interpretation  and  application  could  also  give  rise  to  double  taxation.  In  addition,  although 
almost  all  Member  States  concluded  bilateral  tax  treaties  with  each  other,  some  gaps  and 
mismatches  remain.  Some  Member  States  have  terminated  their  bilateral  tax  treaties.  Treaty 
networks have been usefully updated with the OECD/G20 Base Erosion and Profit Shifting Project 
(BEPS) Action 6 and the Multilateral Convention for Implementing Tax Treaty Related Measures 
to  Prevent  Base  Erosion  and  Profit  Shifting,  but  this  has  also  increased  complexity  and  thereby 
uncertainty.  

2.3.3.2. Risk of over-taxation  

The limited availability of loss relief38, including cross-border loss relief between Member States, 
leads to taxation of business profits which may not always reflect the overall result of the group’s 
activities.  The  non-availability  of  cross-border  loss  relief  can  therefore  result  in  over-taxation. 
Cross-border  relief  is  currently  mainly  available  in  specific  and  very  limited  circumstances 
involving “final” losses within the meaning of CJEU case law39.  

In  most  cases  where  a  business  operates  in  two  or  more  Member  States,  it  is  prevented  from 
utilising losses incurred in another Member State. It follows that a business may turn out to be more 
highly  taxed,  compared  to  if  that  business  had  set  up  the  same  operations  in  one  Member  State 
only, even if there can be legitimate business reasons for doing so. For instance, because of location 
and available workforce, it could be better for a business to import and manufacture goods in one 
Member State but distribute it in another Member State. The contracts and transfer prices between 
the  two  group  members  can  be  stable,  while  maybe  the  cost  of  importing  the  goods  increases 
significantly  at  some  point.  In  this  situation,  the  profits  from  the  selling  the  final  products  may 
perhaps not be set off against the losses from importing the materials. In the same vein, it can thus 
be concluded that such limitations can distort investment decisions and the effective organisation of 
groups operating in the internal market (cf. section 2.3.3). 

2.3.3.3. Increase in tax disputes  

The risk of double taxation and over-taxation for businesses operating cross-border leads to a lack 
of  tax  certainty  due  to  possible  tax  disputes  between  tax  administrations  of  different  Member 
States in cases where they take different views in relation to the treatment of a specific transaction 
within  their  corporate  tax  system.  To  increase  their  tax  certainty,  some  businesses  seek  to  obtain 
tax rulings from a tax authority in respect of the treatment of certain transactions, including cross-
border arrangements. However, if the tax ruling is unilateral, other Member States concerned may 
still  challenge  the  agreed  treatment  of  such  transactions.  Therefore,  even  when  a  unilateral  tax 
ruling is obtained, there is a real risk of tax disputes and possible double or over-taxation.    

The importance of tax disputes is attested by the instruments that have been put in place, and are 
frequently used, to try to resolve them. For example, the EU Arbitration Convention40 established 

38 Loss relief is a mechanism where a taxable loss suffered by a group company can be surrendered to another company 
of the same group, in order to offset/reduce taxable profits of the latter company.  
39 Marks & Spencer plc v David Halsey (Her Majesty's Inspector of Taxes) (Case C-446/03), 13 December 2005 [2005] 
I-10837. 
40  Convention  of  23  July 1990  on  the  elimination  of  double  taxation  in  connection  with  the  adjustment  of  profits  of 
associated enterprises (OJ L 225, 20.8.1990, p. 10). 

17 

 
 
 
since  the  1990s  is  a  non-binding  procedure  to  resolve  transfer  pricing  disputes  between  Member 
States.  As  shown  in  Figure  2,  the  number  of  Mutual  Agreement  Procedures  (MAP)  between 
Member  States  under  the  Arbitration  Convention  is  still  increasing,  which  evidences  that  double 
taxation within transfer pricing is still a relevant issue.41  

Figure 2 – Mutual Agreement Procedures (MAPs) under the Arbitration Convention 

Total number of Mutual Agreement Procedures (MAPs)

3000

2500

2000

1500

1000

500

0

2016

2017

2018

2019

2020

2021

Opening inventory on 1 January + cases initiated during that year

Additionally,  the  Directive  on  tax  dispute  resolution  mechanisms42  is  a  more  recent  hard-law 
instrument  which  can  be  used  on  the  taxpayer’s  initiative.  It  provides  legal  certainty  that  certain 
disputes  will  be  resolved  within  a  given  timeframe  and  covers,  amongst  others,  transfer  pricing 
disputes. Although dispute resolution mechanisms significantly facilitate the resolution of disputes, 
they  do  not  prevent  such  disputes  from  occurring  and  often  require  a  long  timeframe  before  the 
parties  reach  an  agreement.  The  root  of  the  problem  is  therefore  linked  to  the  fact  that  a  dispute 
arises in the first place. 

For  example,  in  2021,  there  were  some  2,300  ongoing  MAPs43  to  settle  disputes  on  questions  of 
transfer pricing. According to the OECD, on average, these procedures take almost three years, and 
only  half  of  them  close  with  a  full  agreement.44  Today,  disputes  associated  with  transfer  pricing 
tend  to  be  extremely  lengthy  (they  may  extend  for  over  a  decade),  time-consuming  and  costly. 
Costs  include  those  for  staff  of  legal  departments  in  companies,  but  also  costly  external  legal 
advice. In 2017, the 2,400 firms captured by the above-mentioned survey had, on average, costs for 
outsourcing of compliance activities of more than EUR 4,000 per firm. For litigations in particular, 
the costs are a multiple of that amount. For example, German tax advisors could charge EUR 150 
per hour.45 A 40-hour week of work would then cost EUR 6,000, potentially resulting in a total cost 
per  procedure  of  almost  EUR  1  million  if  one  assumes  a  duration  of  three  years.  Even  this  is  a 

41 European Commission, Statistics on APAs and MAPs in the EU (europa.eu). The UK is excluded. See also: Mutual 
Agreement Procedure Statistics 2021 per jurisdiction - Inventory - OECD.  
42 Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union.  
43 Included in the numbers shown in Figure 2.  
44 OECD, Multiannual Agreement Procedure Statistics. 
45 The fees for charges for tax advisors are regulated in many countries. In Germany, for example, the schedule of fees 
for tax advisors (Vergütungsverordnung) envisages a fee of up to EUR 75 per half an hour. Each week of work (40 
hours) would then cost EUR 6.000.  

18 

 
 
 
 
lower-bound  estimate  as  hourly  fees  for  lawyers  are  usually  much  higher.  Moreover,  costs  of 
litigation also include the teams in national tax administrations handling these cases. 

2.3.4.  Businesses are discouraged from expanding cross-border 

One specific distortion that is of particular importance in the context of the  internal market is the 
fact  that  complexity,  and  as  a  consequence  a  high  tax  compliance  burden  and  tax  uncertainty 
leading  to  potential  litigation,  hampers  cross-border  expansion  altogether.  In  other  words, 
complexity acts as a barrier for the expansion of businesses across borders in the  internal market. 
Especially smaller groups may be affected by this when they wish to further develop their business, 
but also larger firms may for instance decide to concentrate their investment in a few jurisdictions 
to  avoid  dealing  with  many  administrative  or  regulatory  rules,  including  tax  rules,  while 
economically, it could be more interesting to spread operations. As a result, there may be less cross-
border activity in the internal market and less direct competition between businesses. This in turn 
may impact negatively on innovation, investment, employment and growth in the EU. It would also 
hinder EU competitiveness vis-à-vis other global trading partners.  

2.4.  How will the problem evolve? 

If no action is taken at the level of the EU to bring more simplification in the tax rules notably those 
regarding the calculation of the tax base for the taxpayers with extensive cross-border activity, the 
situation  just  described  will  persist,  i.e.,  large  tax  compliance  costs  and  high  uncertainty  and 
litigation  costs,  which  are  a  deadweight  loss  and  which  can  discourage  expansion  within  the 
internal  market  and  potentially  inward  foreign  investment.  Businesses  report  legal  certainty  and 
reduced  complexity  as  important  matters  for  economic  decisions  and  wish  to  look  at  the  internal 
market as one set of rules for compliance. While in some other areas, there is significant progress to 
simplify/converge  in  the  definition  of  rules/standards,  in  what  regards  direct  taxation  complexity 
remains very significant as just described.  

Moreover,  the  above  discussed  issues  will  not  be  prevented  by  existing  EU  policies.  The  Parent-
Subsidiary  Directive  was  adopted  in  the  early  1990s,  to  eliminate  double  taxation  of  profits 
distributed  by  a  company  resident  in  one  Member  State  to  a  parent  company  resident  in  another 
Member State. The Interest and Royalty Directive serves the same purpose. More recently, in 2017, 
rules  on  hybrids  have  been  added  to  the  Anti-Tax  Avoidance  Directive  (ATAD)  to  deal  with 
mismatches leading to double non-taxation where there is a different legal qualification of the same 
transaction between two Member States. However, these pieces of legislation do not cover the full 
range  of  issues,  as  transfer  pricing  compliance  remains  burdensome  and  expensive.  This  can  be 
witnessed by the continued proliferation of transfer pricing expert advice in the legal and consulting 
profession.  Disputes  also  remain  prevalent  and  lengthy.  In  addition,  within  a  group,  some 
companies may be profitable and others loss-making  in  a certain  tax year. In the current  context, 
losses incurred in one Member State cannot be used against the profits of another company within 
the same group. This problem will continue to result in a risk of over-taxation.  

Finally,  it  is  important  to  mention  that  the  status  quo  would  be  inconsistent  with  recent 
developments in the field of corporate taxation taking place at the international level, such as the 
OECD/G20  Inclusive  Framework  Two-Pillar  Approach.  The  most  recent  example  is  the  Pillar  2 
Directive, as explained above and in Annex 6. Without EU intervention, large groups would have 
to go through uniform calculations worldwide to compute at which level they pay corporate tax but 

19 

 
 
within  the  internal  market,  they  would  still  need  to  comply  with  multiple  different  rules  for 
computing their tax liability in the first place.  

3.  WHY SHOULD THE EU ACT? 

3.1.  Legal basis 

The legal basis for this initiative is Article 115 of the Treaty on the Functioning of the EU (TFEU). 
This provision allows for the approximation of laws of the Member States, which directly affect the 
establishment or functioning of the internal market. The initiative assessed here falls in the field of 
direct taxation and possess an aspect of primarily cross-border activity.  

The rules of this initiative will provide a single corporate tax rulebook for the calculation of the tax 
base which will mainly be addressed to large groups of companies with taxable presence in the EU. 
As such, it will simplify tax rules for businesses in the internal market and is expected to stimulate 
investment  and  growth  and  contribute  to  ensuring  more  sustainable  tax  revenues  for  Member 
States. In addition, the framework for transfer pricing focuses on the practice of adjusting the price 
of transactions between associated enterprises and this refers to inherently cross-border operations.  

The  initiative  therefore  proposes  changes  to  the  status  quo  that  can  have  a  decisive  and  direct 
impact  on improving the functioning  of the  internal  market, by aiming  to  eradicate distortions.  It 
simplifies  existing  rules  as  well  as  addresses  complexity  and  its  consequences,  including  tax 
compliance costs and tax uncertainty. 

3.2. 

Subsidiarity: Necessity of EU action 

In  accordance  with  the  subsidiarity  principle  laid  down  in  Article  5(3)  TFEU,  action  at  EU  level 
should be taken only when the aims envisaged cannot be achieved sufficiently by Member States 
acting alone and in addition, by reason of the scale or effects of the proposed action, can be better 
achieved by the EU. 

Today’s  business  models  increasingly  involve  economic  groups  that  operate  globally,  including 
across  more  than  one  Member  State  within  the  EU.  In  their  conduct,  groups  have  to  adhere  to 
different corporate tax systems in the 27 Member States. This is because the current framework of 
uncoordinated  action,  planned  and  implemented  by  each  Member  State  individually,  results  in 
persisting fragmentation and complexity. This creates a serious impediment to business activity in 
the internal market.  

Indeed, different country-specific rules imply high compliance costs for businesses active in cross-
border operations within the internal market, as they must comply with various legal frameworks. 
This creates barriers; such a large administrative burden and tax uncertainty that discourage cross-
border  commercial  activity.  In  addition,  complexity  associated  with  dealing  with  multiple  tax 
administrations  can  give  rise  to  lengthy  and  costly  legal  disputes  and  result  in  double  or  over-
taxation, which again discourage cross-border investment. This situation is exacerbated by the fact 
that Member States’ practices of applying the internationally agreed transfer pricing standards tend 
to  vary  (see  Table  in  Annex  7).  Such  complexity  and  its  consequences  would  be  significantly 
reduced if businesses could benefit from a single EU-wide set of corporate tax rules, and this were 
coupled with closer coordination in applying the existing transfer pricing standards. 

20 

 
 
An EU-wide common set of rules would significantly limit the room for mismatches and, as such, 
address  this  problem  in  a  comprehensive  manner.  The  existence  of  27  disparate  corporate  tax 
systems  designed  and  managed  at  the  national  level  inevitably  overburdens  compliant  taxpayers 
and  results  in  divergent  tax  treatments  due  to  mismatches  or  unintended,  different  interactions 
between  tax  systems.  This  can  limit  sustainable  growth  across  the  EU  because  it  can  impede 
competitive  economic  activity  and  investment,  including  cross-border,  and  in  turn  limit  tax 
revenues to be used for public expenditure. An EU-wide common set of rules would significantly 
limit the room for mismatches and, as such, address this problem in a comprehensive manner. 

These problems are common to all Member States and cannot be effectively addressed by disparate 
national  action.  In  fact,  as  they  result  from  the  very  fragmentation  and  diversity  of  tax  systems, 
national uncoordinated measures that would be put in place might have undesirable implications by 
adding further complication and forcing businesses to incur extra costs. In this context, an EU-wide 
initiative providing for a common set of rules would be effective in addressing such problems.   

Similarly, while better cooperation between tax administrations may be beneficial to address some 
of the problems, this approach is mainly bilateral and can therefore be effective only to  a limited 
extent.  While  double  or  over-taxation  can  indeed  be  prevented  by  double  taxation  conventions 
between Member States, such frameworks are corrective in that they intervene on the assumption 
that it would otherwise occur, and when it does occur, dispute resolution processes are lengthy and 
costly, as explained above. The approach is also of limited effectiveness when it comes to groups 
that operate in more than two Member States. Therefore, an EU-wide initiative is needed to be able 
to tackle the origin of double or over-taxation, or other forms of tax uncertainty, in the EU. An EU 
system can have technical features, such as the aggregation of the tax bases of the EU members of a 
group, that will eliminate the risk of double taxation and disputes. Moreover, an EU-wide platform 
such  as  the  BEFIT  Teams  (explained  below),  which  gathers  tax  inspectors  from  all  concerned 
Member States, is also necessary to be able to provide early certainty instead of lengthy procedures.      

The initiative assessed here aims to simplify the currently complex rules for corporate taxation in 
the  internal  market  that  result  from  the  co-existence  and  interaction  of  27  national  and  disparate 
corporate tax systems.  Adopting a common approach would be the most effective way to  correct 
the current distortions in the functioning of the internal market and achieve the desired outcome. 

Since  the  problem  is  primarily  of  a  cross-border  nature,  it  can  only  be  tackled  by  laying  down 
legislation  at  the  EU  level.  This  initiative  is  therefore  in  line  with  the  subsidiarity  principle, 
considering  that  individual  uncoordinated  action  by  the  Member  States  would  only  add  to  the 
current fragmentation of the legal framework for corporate taxation and fail to achieve the intended 
results. A  common approach  for  all Member States would have the highest  chances of  achieving 
the intended objectives. 

3.3. 

Subsidiarity: Added value of EU action 

Action at the EU level would bring significant benefits to both businesses and tax administrations. 
Most key features of the initiative, such as a simplified calculation of the tax base and the allocation 
of  aggregated  profit  to  the  eligible  group  members  as  well  as  a  coordinated  approach  to  transfer 
pricing, have a cross-border underpinning and could only be addressed, with an added value, within 
the context of a single set of rules. Common substantive corporate tax rules are also a prerequisite 
for administrative simplifications, such as a ‘one-stop-shop’ for groups of companies operating in 
the EU. 

21 

 
 
As explained above and in Annex 7, the allocation of profits among jurisdictions under the current 
systems is based on transfer pricing and specifically, the arm’s length principle, the application of 
which is transaction-based and inherently subject to interpretation. This initiative would require that 
the  allocable  profit  be  computed  in  accordance  with  common  rules,  by  either  applying  a  limited 
number  of  adjustments  to  the  financial  statements  of  companies  or  by  introducing  a  fully 
harmonised EU tax base, as set out in Chapter 5. Both these options would be expected to introduce 
the  necessary  unification  across  the  EU  and  in  this  way,  they  would  not  only  simplify  the 
determination of the tax base for businesses, but also  successfully tackle mismatches  between 27 
disparate national systems. 

Moreover,  a  possible  future  formulaic  approach  to  allocate  profit  within  large  corporate  groups, 
which  could  eventually  be  designed  at  a  later  stage,  could  be  based  on  factors  that  reflect  a 
company’s value and add objectivity to the exercise of sharing the base among group members. By 
limiting the margin for interpretation, a well-designed allocation rule would significantly reduce the 
number  of  disputes  that  currently  arise  in  the  application  of  transfer  pricing  rules.  This  would 
however  only  have  added  value  if  defined  at  EU  level.  If  Member  States  use  different  factors  or 
weightings, the risk of double taxation and disputes would remain.   

Businesses and tax administrations would also derive a clear benefit from more clarity and certainty 
on  transfer  pricing  rules.  Consequently,  enhanced  tax  certainty  for  transfer  pricing  for  BEFIT 
groups as well as, more generally, a common approach whereby the OECD arm’s length principle 
would be integrated in law and Member States  would ensure a more consistent application of the 
OECD Guidelines, will bring added value at EU level.  

In addition, for businesses active across the EU more broadly, the opportunity to comply with their 
fiscal  obligations  by  referring  to  only  one  system  of  substantive  corporate  tax  rules  would  bring 
gains in terms of administrative simplification. Such a system would be administered, to the extent 
possible,  through  a  one-stop-shop,  which  would  significantly  reduce  compliance  costs  for 
businesses.  Dealing  with  the  tax  authorities  of  several  Member  States  through  a  streamlined 
procedure would further minimise the number of disputes and ensure a consistent application of the 
rules.  These  two  advantages,  taken  together,  would  have  additional  positive  effects  on  the 
compliance of businesses, which cannot be achieved without EU intervention. 

By decreasing  compliance costs and tax obstacles, this initiative  would in turn foster foreign  and 
domestic investment as well as capital mobility in the EU for large groups, as businesses operating 
in different Member States should be able fully maximise the freedom of establishment and the free 
movement of capital without being hindered by tax regulatory obstacles. 

Considering the scale and effects of the envisaged initiative, the objectives to attenuate the negative 
effects  resulting  from  the  current  interaction  of  27  disparate  national  tax  systems  and  divergent 
transfer pricing  practices and to  create more  favourable conditions  for cross-border investment  in 
the internal market would be better achieved at Union level. 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? 

This section outlines the general and specific objectives that the initiative pursues to ensure a stable 
and  consistent  functioning  of  the  internal  market.  The  ‘Intervention  Logic’  in  Figure  3  presents 
these objectives jointly with the problem drivers and problems that the initiative aims to address. 

22 

 
 
Figure 3: General and Specific Objectives 

4.1.  General objectives 

A primary objective of the initiative is to simplify tax rules for businesses in the EU. This should 
increase  businesses’  resilience  by  reducing  compliance  costs.  The  proposal  will  introduce  a 
common framework with rules that are easier to comply with and that result in less cross-border tax 
disputes. Simpler rules would enhance tax  certainty and facilitate the activities of companies that 
wish to operate in several Member States.  

The proposal further aims to stimulate growth and investment in the EU by reducing the number 
of corporate tax systems that businesses must comply with in the internal market. It will make the 
environment for doing business more attractive46. By reducing the disparities between the existing 
corporate tax systems in the internal market, the proposal will also provide for a common approach 
to taxing profit that does not distort businesses’ investment and financing decisions.  

At the same time, this  initiative aims to  ensure fair and sustainable tax revenues for  Member 
States.  Taxation  plays  a  fundamental  role  in  raising  resources  for  governments.  Tax  revenues 
provide  governments  with  the  means  to  invest  in  infrastructure  and  R&D  and  to  deliver  public 
services. This should be done in an effective and efficient manner being accountable to citizens and 
responding  to  their  needs.  As  mentioned  above,  especially  after  the  COVID-19  and  the  current 

46 As explained in Annex 3, the objectives of the  initiative also relate to the Sustainable Development Goals (SDGs). 
Notably, the general objective to stimulate growth and investment should translate into a positive impact on SDGs no. 8 
and 9.  

23 

 
 
 
 
energy crisis, there was a growth in general government expenditures and accordingly, an increased 
need for tax revenues.47 This is made more important in view of the megatrends described before 
and to respond to the political priorities of the Commission including to fund the digital and net-
zero transition.  

4.2. 

Specific objectives 

The specific objectives of the initiative contribute to achieving the general objectives. The specific 
objectives link directly to the problem and its consequences, as identified in Chapter 2.  

The initiative aims to reduce compliance costs for EU businesses. Compliance costs can act as a 
barrier to growth.  Therefore, it is important that these barriers be alleviated.  Considering that EU 
businesses would be made subject  to,  or given the possibility of applying,  a simplified set  of tax 
rules, compared to the current environment, it should take less resources for businesses to comply. 
The envisaged common approach to transfer pricing can also have a significant impact on lowering 
the  businesses’  budget  for  tax  compliance,  as  the  formalities  for  compliance  and  the  number  of 
disputes is expected to be reduced.  

Secondly, the initiative will contribute to reducing distortions that influence business decisions 
and mitigate fragmentation in the  internal market. Several  aspects of the initiative could help 
achieve this objective. 

This  initiative  would  provide  a  level  playing  field  for  groups  of  companies  within  its  scope  by 
establishing  a  uniform  set  of  corporate  tax  rules  for  the  members  of  the  group  operating  in  the 
internal  market.  In-scope  businesses  would  thus  benefit  from  a  tax  environment  where  tax 
competition would be kept within the limits of fairness and not be polluted with harmful features 
that would solely aim to attract investments based on tax motives. Therefore, when businesses had 
to take decisions about which Member State to invest in, or expand their operations to, they would 
face a more uniform corporate tax system, which would ensure that investment decisions are free 
from certain distortions. In addition, this objective would be reinforced by the gradual development 
of common and consistent approaches among Member States’  tax authorities to the interpretation 
and application of transfer pricing norms. This would improve the business environment in the EU 
and contribute towards a level playing field for businesses in the internal market.  

The initiative will aim  to encourage cross-border expansion. This specific objective can mostly 
be  achieved  by  providing  simplification  of  the  tax  framework  and  establishing  common  rules.  In 
this way, the businesses, particularly national groups or groups of a smaller size, would not face a 
cliff  effect,  i.e.,  a  sudden  increase  in  the  compliance  and  other  burdens  when  expanding  their 
operations cross-border.  In parallel,  the initiative also  aims to encourage  larger  groups  to  achieve 
further cross-border expansion. As EU businesses come in all sizes and shapes, it is important that 
the encouragement for cross border expansion is available to all such businesses. 

47  Eurostat,  Evolution  of  total  general  government  expenditure,  EU,  1995-2020,  %  of  GDP.png,  available  at 
https://ec.europa.eu/eurostat/statistics-
explained/index.php?title=File:Evolution_of_total_general_government_expenditure,_EU,_1995-
2020,_%25_of_GDP.png.  

24 

 
 
 
Thirdly, the initiative also aims to reduce the risk of double and over-taxation and tax disputes. 
Issues for transfer pricing, an area with an inherent risk of double taxation, will be addressed, first, 
through a simplification of compliance with arm’s length for transactions between a group member 
and  a  (non-group)  associated  enterprise  and,  second,  through  common  EU  approaches  to  the 
application  of  certain  discretionary  transfer  pricing  concepts.  This  bifocal  approach  would  thus 
ensure a greater focus on alleviating the risk of double taxation to a greater extent. Secondly, cross-
border  loss  relief  through  the  aggregation  of  tax  bases  among  the  companies  in  a  group  would 
eradicate the risk of over-taxation in this context. Third, the initiative intends to reduce tax disputes 
for businesses operating cross-border, through establishing an effective administration mechanism 
that would require engagement by national tax administrations.  

Finally,  the initiative aims to  increase  tax  certainty and fairness  for business. A clear outcome 
from  both  the  targeted  and  public  consultations  was  the  businesses’  desire  for  tax,  and  more 
broadly,  legal  certainty.  Tax  certainty  has  always  been  a  high  priority  for  businesses,  often 
highlighted as a more important concern than the tax rate. This has become an even more important 
issue  due  to  the  vast  number  of  ambitious  reforms  in  international  corporate  taxation  in  recent 
years.  

5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? 

As  explained  above,  the  initiative  to  address  current  challenges  in  the  field  of  corporate  taxation 
involves a corporate tax  system  intended to  apply to all sectors of economic activity without any 
envisaged  exceptions  based  on  the  industry.  As  the  initiative  would  replace  the  existing  national 
corporate  tax  frameworks  for  the  companies  in  its  scope,  they  would  be  all-inclusive,  i.e.,  no 
exemptions  would  apply  to  specific  sectors  of  activity/industries  (e.g.,  no  exemptions  for  banks). 
There may however feature sector-specific rules (e.g., a carve-out for certain shipping income), in 
order  to  more  accurately  reflect  the  specific  characteristics  of  certain  industries  and  ensure  that 
there are no distortions  in the system.  Its  scope  would mostly  be delineated by choices about  the 
size  of  groups,  rather  than  the  sector  of  activity.  This  is  because  the  system  would  focus  on 
primarily tackling challenges linked to cross-border businesses, which tend to be different for larger 
and smaller enterprises.  

This initiative is twofold and covers options for: 

A.  BEFIT which is comprised of the following building blocks to arrive at  a common set of 
rules for the corporate tax base of large groups: (i) scope, (ii) tax base calculation, i.e., to 
determine  the  preliminary  tax  result  of  each  BEFIT  group  member,  which  would  be 
aggregated  at  the  BEFIT  group  level,  (iii)  allocation  of  the  aggregated  tax  base  to  the 
eligible group members, (iv) transactions between BEFIT group members, on the one hand, 
and  associated  enterprises  outside  the  BEFIT  group,  on  the  other  hand,  and  (v)  the 
administration  of  the  system.  These  five  building  blocks  are  all  essential  to  any  corporate 
tax system, therefore the analysis in this Chapter assumes that all five building blocks are 
necessary, and none can be dropped. In this light, the options assessed involve alternatives 
under each building block.   

B.  A common approach to transfer pricing which considers the options of (i) including the 
OECD arm’s length principle and transfer pricing guidelines in EU law; or (ii) in addition to 
(i) also regulate the prospect for ongoing coordination towards a common EU approach to 
certain transfer pricing practices. This is aimed to apply to transactions between associated 

25 

 
 
enterprises, i.e., entities that have some degree of association but are not within the same tax 
group.  

Figure 4: Overview: Initiative, Building Blocks and Options 

5.1.  What is the baseline from which options are assessed? 

The  baseline  policy  option  is  to  keep  the  existing  policy  framework.  This  means  that  the  EU 
continues  with  27  different  corporate  tax  systems  and  no  simplification  at  EU  level  is  offered  to 
businesses.  Businesses  operating  in  all  27  Member  States  would  continue  to  calculate  their  tax 
liability based on national corporate tax bases as there would be no common rulebook. Maintaining 
the  existing  policy  framework  also  means  that  the  profit  allocation  within  multinationals  would 
continue to  be performed by reference to  existing  transfer pricing  rules,  with  all the complexities 
and uncertainties that this entails, as outlined in Chapter 2, and without any EU-wide coordination 
in the application of the guidelines that interpret the arm’s length principle.  

5.2.  Description of the policy options 

5.2.1.  BEFIT - a common set of rules for the corporate income tax base of companies 

within large groups  

5.2.1.1. Scope 

BEFIT  rules  will  apply  to  the  EU  members  of  groups  of  companies  that  prepare  consolidated 
financial accounting statements. These are companies which are resident for tax purposes in the EU 
(“EU  tax  resident  companies”)  and  also  EU-located  permanent  establishments  of  companies 
resident outside the EU (“EU-located permanent establishments”).  

26 

 
 
 
 
In  simple  terms,  a  group  of  companies  is  a  collection  of  a  parent  company  and  its  subsidiaries 
whereby  the  parent  owns  a  controlling  interest  in,  and  exercises  a  function  of  control  over,  the 
subsidiaries. In the case of groups that have a dimension beyond the EU, BEFIT will only apply to 
the EU members of such a group.  

Three options  are considered:  (i) mandatory for all, (ii) optional  for all, and (iii) a hybrid option: 
mandatory above a certain revenue amount, and optional below that.  

Option  1:  Mandatory  for  all  EU  members  of  groups  that  prepare  consolidated  financial 
accounting statements 

Under  this  option,  all  EU  tax  resident  companies  and  the  EU-located  permanent  establishments 
which  are  members  of  a  group  that  prepares  consolidated  financial  accounting  statements  fall 
within the scope of the BEFIT rules, regardless of the level of annual combined revenues of such 
group. Member States would continue to establish corporate tax rates at national level, but all the 
EU  tax  resident  companies  and  EU-located  permanent  establishments  of  in-scope  groups  would 
calculate their tax base in accordance with the common (BEFIT) rules. 

Option  2:  Optional  for  all  EU  members  of  groups  that  prepare  consolidated  financial 
accounting statements 

Under  this  option,  all  EU  tax  resident  companies  and  the  EU-located  permanent  establishments 
which are members of a group that prepares consolidated financial accounting statements could opt 
to apply the BEFIT rules, regardless of the level of the annual combined revenues of such group.  

To avoid ‘cherry-picking’ practices, this option would require that, in the event of opting in, all EU 
tax resident companies and EU-located permanent establishments of the group would be included 
in the option and for a set minimum period of time. Member States would continue to set corporate 
tax rates at national level, but all members of the opting-in groups would calculate their tax base in 
accordance with the common (BEFIT) rules. 

Option  3:  Hybrid  -  mandatory  for  all  EU  members  of  a  group  with  annual  combined 
revenues  exceeding  a  certain  amount  and  optional  for  all  EU  members  of  a  group  with 
revenues below this threshold  

Under this option, the BEFIT rules would be mandatory, and replace the national corporate income 
tax system, for all EU tax resident companies and EU-located permanent establishments which are 
members  of  groups  of  companies  with  annual  combined  revenues  beyond  a  certain  threshold. 
Considering that BEFIT will build on the Pillar 2 Directive and should capitalise on the degree of 
harmonisation achieved in that context, it would be reasonable to align this threshold with that of 
the Directive, i.e., annual combined revenues exceeding EUR 750 million. All other groups, which 
prepare  consolidated  financial  statements  but  record  annual  combined  revenues  below  the  agreed 
threshold,  would  have  a  right  to  opt  in  and  apply  the  common  rules.  In  such  case,  all  EU  tax 
resident  companies  and  EU-located  permanent  establishments  of  the  opting-in  group  would  be 
subject to the BEFIT rules for a set minimum period of time.  

27 

 
 
5.2.1.2. Tax base calculation  

Two  options  will  be  considered  for  this  building  block:  (i)  a  limited  set  of  tax  adjustments  to 
income  as  this  is  reported  in  the  financial  accounting  statements,  and  (ii)  a  comprehensive  and 
complete set of tax rules. 

Option 1: Limited tax adjustments  

The aim of BEFIT is to set up a simple, yet effective, common corporate tax system in the EU. To 
comply  with  this  objective,  the  tax  base  of  each  BEFIT  group  member  would  be  determined  by 
applying limited common tax  adjustments to  its income.  In the public consultation,  a majority of 
the respondents was in favour of such an approach. 

To ensure that the entire BEFIT group uses the same financial accounting standard as starting point 
in  this  exercise,  the  tax  adjustments  should  be  made  to  the  ‘reconciled’  financial  accounting 
statements of each group member, i.e., the financial statements (of each group member) adjusted to 
align with the standard followed for the consolidated financial statements of the group. The list of 
such adjustments (e.g., tax depreciation, treatment of profit distributions, deductibility of business 
expenses, long-term contracts, bad debt, provisions, taxes paid) would consist of certain items that 
represent  a  significant  part  of  the  current  corporate  tax  base  of  a  BEFIT  group  member  (around 
90%). 

This  is  a  fundamental  difference  between  BEFIT  and  the  approach  that  was  followed  in  past 
initiatives of the Commission, notably the 2011 and 2016 CCCTB proposals. As introduced above, 
BEFIT builds on the rules for the determination of the tax base under the recently adopted Pillar 2 
Directive,  which  use  financial  accounting  statements  as  a  starting  point  and  subject  the  annual 
financial accounting result to a number of tax adjustments.  

As  the  final  step  in  the  determination  of  the  tax  base,  the  preliminary  tax  results  (i.e.,  the  tax-
adjusted  financial  accounting  results)  of  all  individual  BEFIT  group  members  would  be  added 
together  to  establish  an  aggregated  BEFIT  tax  base.  As  a  result,  intra-group  transactions,  i.e., 
transactions between BEFIT group members, would  be neutralised to  avoid  double deductions or 
double  taxation,  except  for  transactions  relating  to  certain  income  from  shipping  activities  for 
instance, which will not be included in the BEFIT tax base due to its specific treatment.48 

Whether  the  aggregated  BEFIT  tax  base  is  positive  or  negative,  the  profit  or  loss  would  still  be 
allocated to the eligible group members. The part that would be allocated to each group member in 
each Member State through the allocation rule would be subject to a limited number of adjustments 
based  on  a  list  of  items  which  would  not  be  covered  by  the  common  rules  (e.g.,  incentives  for 
research  and  development,  deductions  of  pension  provisions,  tax  credits  relating  to  transactions 
with third countries, etc.). As certain items  of the tax base (e.g., pensions) have a strong national 
thrust and previous experience has demonstrated that Member States are not willing to share the tax 

48 This income is often covered by specific tax regimes, which have to be compatible with state aid rules and the tax 
liabilities would be calculated on the basis of the tonnage (i.e., the carrying capacity) of ships and not the actual profits 
or  losses  incurred.  An  exclusion  of  such  an  amount  would,  therefore,  build  on  an  acknowledged  approach  that  is 
tailored to the realities in the shipping sector and widespread across countries. 

28 

 
 
 
base on these, it would be important to allow adjustments at national level for a limited number of 
items.  

Option 2: Comprehensive set of tax rules 

An  alternative  option  for  the  tax  base  determination  would  be  to  compile  a  comprehensive 
corporate tax system with detailed tax rules, covering all aspects that determine the tax base of each 
individual  BEFIT  group  member  and  the  aggregation  of  these  tax  bases  into  a  single  base.  This 
approach  would  resonate  with  the  2011  and  2016  exercises  that  led  to  the  respective  CCCTB 
proposals.  

Instead of starting  from  the financial accounts, this  option would involve putting  together a fully 
self-standing statute of corporate tax rules, to lay down a common legal framework, which would 
primarily  cover  the  calculation  of  the  tax  base  of  each  individual  BEFIT  group  member:  that  is, 
taxable revenues, tax exempt income, tax deductible expenses and non-deductible items,  rules on 
timing (e.g., accrual of revenues, incurrence of deductible expenses), items with a tax relevance of 
longer than  a year (e.g.,  long-term  contracts,  bad debt,  provisions),  depreciation,  the treatment  of 
tax losses, and a framework for transitioning into and outside of the system.  

The aggregation of the individually computed tax bases of each BEFIT group member into a single 
aggregated base for tax purposes and the allocation of such aggregated base to the eligible group 
members would apply in the same way, as explained under option 1. 

5.2.1.3. Allocation of the aggregated tax base 

The third building block focuses on how to allocate the aggregated base to those group members in 
which the BEFIT group maintains a taxable presence. The basic principle to follow when deciding 
on  the  composition  of  a  formulary  apportionment  is  to  choose  factors  that  reflect  the  source  of 
income  generation.  While  most  respondents  in  the  public  consultation  were  in  favour  of  using  a 
formula,  there  was  no  collective  view  on  how  it  should  be  designed.  For  this  reason,  different 
options could be envisaged, including a transitional allocation rule  which could possibly pave the 
way towards a formulary apportionment for the future. 

Option 1: Formula without incorporating intangible assets 

A  first  option  would  be  to  operate  a  formula  with  the  three  most  commonly  used  factors:  labour 
(which can include payroll and/or the number of employees), tangible  assets  (excluding  financial 
assets except for specific sectors), and sales by destination.  

This  option  is  elaborated  further  below.  These  factors  were  also  used  in  the  2011  and  2016 
proposals  for  the  CCCTB  and  reflect  both  the  state  of  origin/production  (tangible  assets,  payroll, 
number  of  employees)  and  the  state  of  demand  (sales  by  destination).  Inventory  and  intangible 
assets  would  be  excluded.  The  weighting  of  factors  is  also  an  important  consideration.  For  all 
options  under  this  building  block,  equal  weighting  would  apply.  This  means  that  for  this  option, 
labour, assets and sales are treated as equally reflecting the source of income generation. 

29 

 
 
Option 2: Formula incorporating intangible assets  

Under this option and with the aim of catering for the realities of modern economies, the proposal 
would consider ways to include intangible assets49 as a factor in the formula, in addition to the three 
previously mentioned factors. The aim would be to better reflect income generation.  

This  approach  received  support  in  the  public  consultation  particularly  from  businesses,  business 
advisors, and business associations, and its absence under the previous proposals has been a source 
of criticism. The respondents in the public consultation who were opposed to this approach seemed 
to  be  concerned  mainly  by  risks  of  tax  planning.  To  achieve  its  aim  and  to  avoid  abuse,  the 
proposal could consider different sourcing approaches and weighting of the factors. For these sub-
options, equal weighting would apply. This means that for this option, labour, tangible assets, sales, 
and intangible assets are treated as equally reflecting the source of income generation. 

Sub-option 2.1: Location where intangible assets are booked in financial accounts  

The  first  sub-option  would  use  legal  ownership  and  (book)  value  as  recorded  in  the  financial 
statements to determine the location of intangible assets.  

Sub-option  2.2:  Location  where  research  and  development  expenses,  staff  training 

expenses and costs for marketing and advertising are incurred  

The second sub-option would use research and development expenses, staff training expenses, and 
costs  for  marketing  and  advertising  as  a  proxy  value  for  intangible  assets  (i.e.,  where  intangible 
value is created). The proposal would consider the Member State of location of the BEFIT group 
member that ultimately incurred these expenses during the preceding five years, to determine where 
the  intangible  assets  are  deemed  to  be  located.  As  payroll  costs  would  be  an  important  share  of 
these research and development (R&D) expenses under this sub-option, the proposal would reduce 
the payroll component of the labour factor by an amount equal to the R&D costs in the intangible 
assets factor. In this way, there would be no double-counting of the researchers’ salaries, i.e., under 
both the intangible assets and labour factors.  

Such  a  solution  draws  inspiration  from  the  principles  set  out  in  the  OECD  modified  nexus 
approach. Under this  sub-option, part of the tax  base would be  allocated  to  the Member State of 
location of the BEFIT group member that initiated and requested the eligible R&D activities and 
ultimately  incurred  such  costs.  It  will  have  no  impact  whether  such  activities  are  outsourced  or 
performed  within  or  outside  that  Member  State.  This  would  also  ensure  overall  tax  symmetry 
whereby  it  would  be  ensured  that  the  BEFIT  group  member  which  incurred  or  deducted  eligible 
expenses for tax purposes is subsequently allocated the tax base50. 

49  In  simple  terms  an  intangible  asset  is  an  asset  without  physical  (or  tangible)  form.  Examples  include  intellectual 
property such as patents and copyright. 
50 Under the BEPS Action 5 Report - to address base erosion and profit shifting allowing for low or no taxation without 
substance  of  income  from  certain  intangible  assets,  the  OECD  and  G20  countries  developed  the  modified  nexus 
approach. The principles set out intend to ensure that, in order for a significant proportion of IP income to qualify for 
benefits, a  significant proportion of the actual R&D activities must have been undertaken by the qualifying taxpayer 
itself. Thus, a taxpayer may benefit from an IP regime, e.g. for royalty income and/or capital gains, only if and to the 
extent that it has incurred R&D costs related to that IP asset.  

30 

 
 
 
Option 3: Transition rule for allocating the aggregated tax base 

A third option would be a transition allocation rule with transitional features that would last for a 
number  of  years.  During  this  transition  period,  it  would  be  possible  to  evaluate  the  effect  of  the 
implementation  of  Pillars  1  and  2  on  national  and  the  BEFIT  tax  bases  with  more  accuracy, 
supported by more and improved CbCR data.  

Such  a  method  would  allocate  the  aggregated  tax  base  to  the  BEFIT  group  members  based  on  a 
transition rule, which would look at each group member’s percentage in an aggregated tax base that 
will  most  possibly  represent  the  three-year  average  of  the  tax  results  of  the  group  over  previous 
fiscal  years.  Such  an  approach  could  pave  the  way  towards  a  permanent  allocation  mechanism 
which might be based on a formulary apportionment.  

During  the  transition  phase,  the  allocation  of  the  BEFIT  tax  base  would  thus  depend  on  the 
individual  tax  results  of  the  BEFIT  group  members.  Therefore,  it  is  important  that  intra-group 
transactions  remain  consistent  with  the  arm’s  length  principle  during  the  transition.  However, 
enhanced  tax  certainty  can  already  provide  both  businesses  and  administrations  with  additional 
clarity and simplification. In line with international developments and continued experience in the 
EU  in  the  area  of  transfer  pricing,  the  initiative  can  propose  risk  assessment  criteria  to  provide 
businesses with more predictability and to assist the efforts of tax administrations. With formulary 
apportionment, the requirement for consistency with the arm’s length principle could be eliminated 
within the BEFIT group after the transition phase, which will bring further simplification.  

5.2.1.4. Transactions  with  related  parties  outside  the  BEFIT 

group 

As the remit  of EU law is  generally confined to the  internal  market, the intra-group allocation of 
taxable profits would only concern BEFIT group members and not  associated enterprises that are 
located  in  third  countries  or  in  the  EU  but  outside  the  BEFIT  group  (due  to  not  fulfilling  the 
ownership requirements). It therefore follows that other rules would need to apply for the allocation 
of profit between BEFIT-group members and their associated enterprises outside the BEFIT group. 

Option 1: Keep the current transfer pricing practices 

Under this option, the current transfer pricing practices would continue to apply to transactions with 
associated enterprises outside the BEFIT group, and as such these transactions should continue to 
be determined at ‘arm’s length’.   

As  explained  in  Annex  7,  transfer  pricing  is  a  methodology  for  determining  the  pricing  for  tax 
purposes of transactions between related parties. This methodology has been developed because the 
price  of  transactions  between  associated  enterprises  can  be  abused,  to  shift  profits  from  high-  to 
low-tax  jurisdictions  by  artificially  increasing  or  decreasing  such  price.  Pursuant  to  the  current 
international standards, such transactions must be taxed on the same basis as transactions between 
third  parties  under  comparable  circumstances  (so  called  ‘arm’s  length’  principle).  The  ‘arm’s 
length’ principle underlies the profit allocation rules that can be found in Article 9 of the OECD 
Model  Double  Tax  Convention51.  Furthermore,  the  OECD  Transfer  Pricing  Guidelines52  provide 

51 https://www.oecd.org/ctp/model-tax-convention-on-income-and-on-capital-full-Version-9a5b369e-en.htm  

31 

 
 
 
guidance on the  application  of the  arm’s  length  principle, which is  applied and  recognised by  all 
Member States53.  

Option 2: Simplified approach to transfer pricing risk assessment 

As  described  in  Chapter  2  and  Annex  7,  the  interpretation  and  application  of  the  ‘arm’s  length’ 
principle can vary between tax administrations and taxpayers. This could result in legal uncertainty, 
increased compliance costs and double taxation for businesses. 

While  respondents  in  the  public  consultation  had  a  clear  preference  for  maintaining  the  current 
transfer  pricing  rules,  the  majority  was  open  to  a  more  streamlined  approach  to  risk  assessment. 
This option envisages, in addition to the current transfer pricing principles, a simplified approach to 
transfer  pricing  risks  to  increase  tax  certainty.  The  intention  would  be  to  introduce  a  so-called 
‘traffic  light  system’  as  a  risk  assessment  tool  for  transactions  between  members  of  the 
(aggregated)  BEFIT  group,  on  the  one  hand,  and  their  associated  enterprises  outside  the  BEFIT 
group,  on  the  other.  Transactions  would  be  assessed  as  being  of  low,  medium  or  high  risk 
depending on how these transactions compare to a series of pre-set benchmarks agreed at EU level 
and published by tax authorities. It is important to clarify that the ‘traffic light system’ would not 
replace  or  change  the  ‘arm’s  length’  principle.  Instead,  it  would  allow  businesses  to  know  in 
advance  the  ‘arm’s  length’  returns  (market  based)  that  they  would  be  expected  to  achieve  in 
transactions with associated enterprises, provided certain conditions are preliminarily met.  

5.2.1.5.Administration system 

One of the key goals of BEFIT is to reduce compliance and administrative costs for taxpayers and 
Member States, which was welcomed by stakeholders in the public consultation. Accordingly, the 
administration  system  would  be  based  on  the  so-called  ‘one-stop-shop’  (OSS)  principle.  On  this 
basis, procedures would be centralised and performed, to the extent possible, by the Filing Entity 
of the BEFIT group and the Filing Authority. The Filing Entity would be the EU Ultimate Parent 
Entity or any other designated BEFIT group member. The tax administration of the Member State 
where the Filing Entity is resident would be called the Filing Authority.  

The policy choice under this building block is between an Advanced, a Limited and a Hybrid OSS. 
This distinction is relevant across the various aspects of the administration of the system, starting 
from annual filing and covering audits and the resolution of disputes.  

An indispensable feature of the administration of the system would be the “BEFIT Teams” and this 
would be part of this building block, regardless of the choice of options. Its chief role would be to 
coordinate  procedures  which  can  be  dealt  with  centrally  amongst  the  individual  national  tax 
authorities.  

Option 1: Advanced One-Stop-Shop 

The BEFIT group would be in contact exclusively with the Filing Authority: 

52  OECD,  Transfer  Pricing  Guidelines  for  Multinational  Enterprises  and  Tax  Administrations,  (OECD  Publishing, 
January 2022). 
53 For a more detailed explanation on transfer pricing, see Annex 7.  

32 

 
 
 
(i)  The BEFIT Information Return54 would have to be filed by the Filing Entity with the Filing 
Authority.  Then,  the  Filing  Authority  would  share  the  information  of  the BEFIT  Information 
Return with  the tax authorities of the Member States where the other BEFIT group members 
are tax resident (or, in case of permanent establishments (PEs), located).  

(ii)  The Filing Entity would file all the individual tax returns55 of the BEFIT group entities with 
the Filing Authority. In addition, the Filing Entity would need to settle all corporate income tax 
liabilities for the BEFIT group through its single contact with the Filing Authority and the latter 
would distribute the tax revenues to all eligible national authorities. 

(iii) Following  a  tax  audit56  or  a  procedure  for  dispute  resolution57,  the  revised  tax  assessments 
would be notified by the Filing  Authority  to  the  Filing  Entity for  all BEFIT group members. 
This is because the outcome of an audit or dispute resolution could lead not only to a revised 
tax assessment for every (or most) individual BEFIT group member(s) but also, as a knock-on 
effect, to a need for revising the aggregated tax base and allocated parts. 

Option 2: Limited One-Stop-Shop 

It  would  be  for  the  local  BEFIT  group  members  to  carry  out  most  of  the  required  administrative 
formalities:  

(i)  The information included in the BEFIT Information Return would be shared by each BEFIT 
group  member  with  their  local  tax  authorities.  To  obtain  certainty  as  soon  as  possible  on  a 
number  of  aspects  of  the  BEFIT  Information  Return,  a  coordination  mechanism  would  be 
developed within the BEFIT Teams. 

(ii)  The  individual  tax  returns  would  be  filed  by  each  BEFIT  group  member  with  its  local  tax 
authority.  This  means  that  there  would  be  no  engagement  of  the  Filing  Entity  and  Filing 
Authority.  Each  BEFIT  group  member  would  be  responsible  for  their  own  individual  tax 
return.  Furthermore,  BEFIT  group  members  would  have  the  possibility  to  opt  for  filing  one 
individual  tax  return  per  jurisdiction  (a  so-called  ‘Jurisdictional  One-Stop-Shop’)  for  all  the 

54  The  BEFIT  Information  Return  will  provide  information  on  key  Elements  of  the  BEFIT  group,  such  as  the 
identification  of  its  members,  the  group  structure,  the  scope,  the  aggregated  tax  base  of  the  BEFIT  group  and  the 
allocated parts.  
55  The  individual  tax  returns  will  record  the  final  tax  liability  of  each  BEFIT  group  member  after  limited  additional 
adjustments to the apportioned share in accordance with the national law of the Member State where the BEFIT group 
member  is  tax  resident  (or  in  the  case  of  PEs,  located).  It  is  envisaged  to  include  a  ceiling/cap  to  the  permissible 
adjustments, for instance, in the form of a percentage of the apportioned share. 
56 To verify the filed individual tax returns, the local tax authorities of the Member State where a BEFIT group Member 
is  located  would  be  entitled  to  initiate  and  carry  out  tax  audits.  In  addition,  the  Filing  Authority  and  other  local  tax 
authorities  would  have  the  possibility  to  request  such  an  audit,  through  the  consultation  process  within  the  BEFIT 
Teams. Under none of the options for a one-stop-shop, is it envisaged to make changes to the national procedural rules 
that apply in Member States for audits.  
57 When a BEFIT group member does not agree with a revised tax assessment (which can be a result of a tax audit), the 
member will hold a right to challenge this assessment. Disputes in relation to revised tax assessments would primarily 
be settled locally, which means that a BEFIT  group member would have the right to challenge the assessment in the 
Member State where it is tax resident (or in the case of PEs, located). In this context, it is envisaged that when it comes 
to challenging the revised tax assessment, a BEFIT group member would be entitled to the legal means offered by its 
Member State. 

33 

 
 
 
BEFIT  group  members  in  that  jurisdiction.  Tax  revenues  would  be  collected  directly  by  the 
local tax authorities. 

(iii) Following a tax audit or a procedure for dispute resolution, the revised tax assessments would 
be  notified  by  the  local  tax  authorities  to  each  local  BEFIT  group  member  directly.  In  this 
context,  the  BEFIT  Teams  would  have  a  coordinating  function,  to  ensure  that  all  impacted 
jurisdictions adjust the tax liability to reflect the relevant revised adjustment. 

Option 3: Hybrid One-Stop-Shop 

The  hybrid  OSS  combines  features  from  Options  1  and  2,  with  the  aim  to  create  an  efficient 
administrative framework which can borrow as many features as possible from the Advanced OSS 
and fall back to the Limited OSS where national sovereignty in tax matters requires that action be 
taken locally.  

More specifically, in  the context of a hybrid OSS, the BEFIT  Information Return would be dealt 
with  centrally  via  the  Filing  Authority  whereas  the  individual  tax  returns  would  be  filed  by  each 
BEFIT  group  member  with  its  local  tax  authority.  The  local  tax  authorities  would  also  remain 
responsible for the BEFIT group members’ settling of tax liabilities, as well as audits and dispute 
settlement  in  conformity  with  national  tax  sovereignty.  When,  however,  the  tax  base  of  an 
individual company is updated following an audit or dispute settlement and this adjustment affects 
the taxable share of other companies within same BEFIT group,  the BEFIT Teams  would have  a 
coordinating function in case of disagreement among tax authorities.  

This hybrid OSS acknowledges the benefits of advanced coordination but is also designed to allow 
room  for  national-specific  solutions  in  fields  where  national  tax  sovereignty  is  traditionally  a 
sensitive issue. 

BEFIT Teams 

Regardless of which option is preferred, once the BEFIT Information Return is filed and it becomes 
known which entities are included in the BEFIT group, the Filing Authority would form together 
with the other relevant local tax authorities a BEFIT Team for the respective BEFIT group. There 
will be a Team for each BEFIT group. The chair of the BEFIT Team would be the representative of 
the Filing Authority. The purpose of this Team would be threefold:  

(i)  To coordinate processing the BEFIT Information Return, having the aim to reach agreement on 

a number of elements and within a certain period of time;  

(ii)  To coordinate the process of carrying out iterations of the allocation of the aggregated tax base 
where individual tax assessments are revised (for example, after an audit or juridical procedure 
in a Member State);   

(iii) To  provide  a  consultation  instrument  on  all  other  stages  of  the  procedure,  including 

disagreements on revised assessments after audits and/or disputes. 

The BEFIT Team is relevant to all options for the OSS. 

34 

 
 
5.2.2.  Common approach to transfer pricing  

The  initiative  on  transfer  pricing  complements  BEFIT  in  providing  simplification  in  the  area  of 
transfer pricing, but is a separate topic from transfer pricing risk assessment within BEFIT. BEFIT 
would  include  a  simplified  approach  to  transfer  pricing  risk  assessment  of  certain  transactions  of 
the BEFIT group. As such, this risk assessment tool would be limited to the specifics of BEFIT and 
would not touch upon the broader issue of divergent interpretations in the application of the arm’s 
length principle and OECD Transfer Pricing Guidelines. The initiative for a common approach 
to  transfer  pricing,  on  the  other  hand,  directly  involves  the  interpretation  which  delineates  the 
content of the arm’s length principle. This is discussed separately here.  

Out of the 27 Member States, 23 are OECD members and therefore, politically committed to follow 
the  OECD  Guidelines  to  interpreting  the  arm’s  length  principle.  However,  in  addition  to  some 
Member States  not  being OECD members, the status and role of the OECD Guidelines currently 
differ from Member State to Member State.58 

Option 1: Inclusion of the OECD arm’s length principle and Transfer Pricing Guidelines in 
EU Law 

This  option is  about  harmonising transfer pricing norms within the EU in  the form  of principles-
based legislation. The arm’s length principle would be integrated into EU law. In addition, the law 
would clarify the status  and role of the  OECD Transfer Pricing  Guidelines and refer to  the latest 
edition thereof for the interpretation of the arm’s length principle. By effect, the Guidelines would 
be turned into a binding tool, but this would exclusively concern the (latest) edition which would be 
incorporated in EU law; not any revisions thereof. The aim would be to ensure that Member States 
follow the same principle and have a common approach to applying transfer pricing. 

Option 2: Inclusion of the OECD arm’s length principle and Transfer Pricing Guidelines in 
EU law and ongoing coordination towards a common EU approach  

This option builds on Option 1. It would however not only aim to ensure that Member States apply 
the  same  principle  but  go  a  step  further  into  implementing  a  mechanism  which  would  ensure  a 
coordination of views and interpretations of the OECD Guidelines among Member States.   

As under Option 1, the arm’s length principle would be incorporated in EU law and the legislation 
would clarify the role and status of the OECD Guidelines, but under this Option, these would also 
be  complemented  with  a  mechanism  for  coordinating  their  interpretation  and  application  at  EU 
level  on  an  ongoing  basis.  The  mechanism  would  consist  in  setting  up  an  EU  expert  group  or 
committee  to  discuss,  and  agree  on,  specific  topics  that  pertain  to  the  interpretation  of  the  arm’s 
length principle, as these may arise from the OECD Transfer Pricing Guidelines. The aim would be 
to ensure a coordinated approach to practical problems that emerge from transfer pricing practices 

58 For example, some Member States (Spain, Italy, Germany) makes direct reference to the OECD guidelines in their 
national  provisions  recognising  the  OECD  guidelines  as  a  source  of  interpretation  not  only  for  Article  9  of  the  tax 
treaties  but  also  for domestic  legislation  as  long  as  the  guidelines  do not  conflict  with  specific  domestic  regulations. 
Other Member States (France, the Netherlands, Croatia) has not explicitly implemented the OECD guidelines into their 
internal legislation although they report to follow the guidelines in practice. Another group (Estonia, Hungary) reports 
that the OECD guidelines are not recognised as legally binding but that their administrative regulations are based on the 
same principles contained in the OECD Transfer Pricing Guidelines.  

35 

 
 
 
in the EU. This option would also be complemented with a specific anti-tax avoidance framework, 
for instance, to ensure that unilateral downward adjustments do not result in double non-taxation. 

Discarded options 

Three options should be discarded from the outset and will not be assessed: 

(i)  To  develop  an  EU  arm’s  length  principle  with  subsequent  EU-origin  guidance.  The  arm’s 
length  principle  is  a  global  standard  commonly  accepted  and  applied  worldwide.  The  EU 
cannot  substantially  depart  from  such  standard  since  this  would  create  frictions  and 
inconsistencies, in particular in its relations with third countries. 

(ii)  To  incorporate  the  arm’s  length  principle  only  –  without  reference  to  the  OECD  Transfer 
Pricing Guidelines. This option would fall short of the policy objectives of this initiative, as the 
arm’s length principle is not sufficient without the Guidelines for ensuring a common approach. 

(iii) To follow the UN developed definition of the arm’s length principle and Guidance. The UN has 
developed a practical  manual  which is  intended to  be used as interpretation tool of the arm’s 
length principle in Article 9 of the United Nations Model Convention. The UN manual is meant 
to specifically address the challenges that many developing countries face in dealing effectively 
with  transfer  pricing  issues.  Most  of  the  Member  States  are  OECD  members  and  are  not 
represented at the UN fora. It thus makes more sense to refer to the OECD Guidelines.   

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? 

6.1.  Three Versions of the initiatives to be assessed  

As set out in Chapter 4, the initiative aims to introduce a common framework of corporate tax rules 
that will replace the current national corporate tax systems for the businesses in scope. It will aim to 
bring  simplification  for  taxpayers  and  encourage  growth  and  investment  in  the  internal  market, 
while levelling the playing field in which businesses operate. This Chapter explores the impact of 
the  policy  options.  As  not  every  single  option,  and  combinations  thereof,  can  be  assessed 
individually,  the  identified  options  under  the  initiative  were  compiled  in  the  form  of  packages, 
referred to as ‘Versions’. These reflect the two extreme ends of a range and a middle-ground option: 
(1) the highest degree of harmonisation (‘Comprehensive’), which is about laying down uniform 
corporate  tax  rules,  to  enter  into  effect  immediately,  and  setting  up  a  centralised  administrative 
mechanism  to  operate  such  rules;  (2)  the  lightest  approach  (‘Light’),  where  harmonisation  is 
limited and most of the features of the system remain optional. Under the “Light” version, Member 
States  are  given  discretion  to  deviate  within  limits;  and  (3)  the  middle-ground  (‘Composite’), 
which integrates elements of the first two versions of options with the aim to achieve an adequate 
degree of uniformity, which implies that not all tax-technical and administrative features would be 
harmonised. The three Versions are presented in Table 2 and discussed in more detail below.  

Table 2: Three Versions  

36 

 
 
 
Comprehensive  Version  –  Rules  are  mandatory  to  all  with  the  highest  degree  of 
harmonisation  and  immediate  application.  Such  combination  of  options  would  ensure  the 
broadest scope possible and, as a result, the most extensive simplification for tax administrations as, 
as it would replace current national rules on group taxation in the EU to a great extent.  

BEFIT would translate into  a comprehensive corporate tax system  leading  to  a  fully harmonised 
computation of the tax base, de facto replacing 27 disparate national tax systems for computing the 
tax base with a common one. The allocation formula would include intangible assets to best reflect 
today’s economic reality. The Comprehensive Version would introduce a new ‘traffic light system’ 
as  a  risk  assessment  tool  for  transactions  between  a  BEFIT  group  member  and  an  associated 
enterprise  outside  the  BEFIT  group  without  departing  from  the  internationally  established  arm’s 
length  principle.  All  administrative  matters  would  be  settled  by  one  single  entity  of  the  group 
(Filing  Entity) and one tax authority (Filing  Authority). The entity  would file all returns, i.e., the 
BEFIT  Information  Return  of  the  group  and  all  the  separate  tax  returns  of  the  BEFIT  group 
members.  

Transfer  pricing  norms  would  be  harmonised  in  the  form  of  principles-based  legislation,  which 
would  include  the  arm’s  length  principle  and  clarify  the  status  and  role  of  the  OECD  Transfer 
Pricing Guidelines. In addition, the rules would go a step further into implementing a mechanism 
which would ensure ongoing Member State coordination of views and interpretations of the OECD 
Guidelines,  especially  in  light  of  any  revisions  and  the  needs  of  the  internal  market.  The 
Comprehensive  Version  would  entail  setting  up  an  EU  expert  group  or  committee  to  run  the 
process.  

37 

 
 
 
Light Version – Rules are optional, with the least degree of harmonisation including a review 
mechanism.  This  version  would  bring  along  some  changes  to  the  status  quo,  but  they  would  be 
narrower in scope, less comprehensive and with a provision for reviewing the allocation method. It 
would be optional for all groups, and thus provide a flexible framework, enabling groups to choose 
depending on their corporate structures and activities.  

BEFIT  would  allow  for  a  dual  system  whereby  eligible  groups  in  the  EU  will  have  the  right  to 
choose between BEFIT and their national tax system. For those joining BEFIT, it defines a starting 
point to compute the tax base; that is, the financial accounting statements. It would then subject the 
content  of  these  accounts  to  limited  common  tax  adjustments,  to  arrive  at  the  tax  results  of  the 
BEFIT  group  members,  before  being  aggregated  into  the  single  BEFIT  tax  base.  In  addition,  the 
allocation  rule  would  be  based  on  prior  years’  tax  results  and  would  be  subject  to  review  with  a 
view  to  possibly  proposing  an  allocation  method  based  on  formulary  apportionment.  The  system 
would maintain the existing rules and risk assessment practices in the field of transfer pricing with 
regard  to  transactions  between  a  BEFIT  group  member  and  its  associated  enterprises  outside  the 
BEFIT  group.  The  Light  Version  proposes  an  overall  coordinated  approach  to  the  administrative 
matters,  while  ensuring  that  tax  audits  and  control  remain  locally  administered  by  the  Member 
States.  

Transfer  pricing  norms  would  be  harmonised  in  the  form  of  principles-based  legislation,  which 
would  include  the  arm’s  length  principle  and  clarify  the  status  and  role  of  the  OECD  Transfer 
Pricing Guidelines.  

Composite  Version  –  A  composite  package  with  features  of  mandatory  harmonisation 
including a review mechanism.   

BEFIT would ensure common and mandatory rules targeted at the EU sub-set of large groups that 
are  also  in  scope  of  the  Pillar  2  Directive.  These  groups  would  be  most  likely  to  have  extended 
cross-border  structures  and  activities  and  be  already  familiar  with  certain  features,  in  particular 
those which feature in Pillar 2. These groups could therefore be expected to benefit the most from 
the  simplification  that  BEFIT  offers.  For  computing  the  tax  base,  they  would  start  from  the 
financial  accounting  statements  used  for  preparing  their  consolidated  accounts  and  subject  the 
reported income to a limited number of tax adjustments. The system would also include a transition 
rule to  allocate the aggregated tax base based on  the average of the tax  results of the group over 
previous fiscal years, as well as a review clause aimed to assess the effects of the allocation method 
and  address  possible  changes  in  the  corporate  tax  environment  after  Pillars  1  and  2  have  entered 
into  force.  The  Composite  Version  would  also  propose  the  introduction  of  a  new  ‘traffic  light 
system’  as  a  risk  assessment  tool  for  transactions  between  a  BEFIT  group  member  and  its 
associated  enterprises  outside  the  BEFIT  group.  This  would  not  depart  from  the  arm’s  length 
principle. There would be a hybrid one-stop-shop in the administration, meaning that a part of the 
issues would be settled by the single Filing Entity of the group (Filing Authority), while all BEFIT 
group members would file separate returns with their local tax authorities.  

Transfer  pricing  norms  would  be  harmonised  in  the  form  of  principles-based  legislation,  which 
would  include  the  arm’s  length  principle  and  clarify  the  status  and  role  of  the  OECD  Transfer 
Pricing Guidelines. In addition, the Composite Version would go a step further into implementing a 
mechanism which would ensure ongoing Member State coordination in interpretating and applying 
the OECD Guidelines, especially in the light of any revisions and the needs of the internal market. 

38 

 
 
The Composite Version would also entail setting up an EU expert group or committee to run the 
process. 

6.2. 

Scope: How many company groups could be affected? 

The number of companies falling under this proposal depends on the Version to be chosen, and in 
turn, on the choices made by companies when the system is optional.  

Under  the  Composite  Version,  an  estimation  of  the  number  of  today’s  MNEs  that  would  be  in 
scope of BEFIT is based, inter alia, on aggregate CbCR data for MNEs with a consolidated yearly 
revenue  exceeding  EUR 750  million.59  For  the  most  recently  published  reporting  year  (2018), 
CbCR data suggests that 4,082 MNEs in the EU fall into this category60 and would thus be subject 
to  BEFIT  rules  for  large  enterprises.  They  would  also  fall  within  the  scope  of  the  Directive  on 
transfer pricing, which aims to integrate the arm’s length principle in EU law and seek a common 
approach  to  the  interpretation  and  application  of  the  OECD  Transfer  Pricing  Guidelines.  The 
number  of  smaller  MNEs  below  that  threshold  can  only  be  approximated  (see  Annex  4  for  more 
details). Based on the ECB’s EuroGroups Register (EGR), there are some 209,000 groups in that 
category.  Around  7.5%  of  them  are  estimated  to  prepare  consolidated  financial  accounts  (around 
16,000 groups). Figure 5 below shows the estimated number of groups that have annual combined 
revenues  up  to  EUR  750  million  and  prepare  consolidated  financial  accounting  statements.  The 
number strongly declines as the size of groups increases. These groups would have the right to opt 
in  into  BEFIT  and  benefit  from  the  new  EU  coordinated  approach  to  transfer  pricing.  The 
population of these groups could be expected to grow as new rules will incentivise so-far domestic 
companies to invest cross-border.  

Under  the  Comprehensive  Version,  all  groups  would  be  covered  by  BEFIT.  The  Light  Version 
would  be  likely  to  involve  a  different  mix  of  groups  and  potentially  a  smaller  number  of  groups 
overall as it is optional.  

Figure 5: MNE’s with consolidated revenue < EUR 750 million, in scope of BEFIT (estimate) 

TAXUD calculations based on EuroGroups data 

59 Country-By-Country Reports are typically filed by large MNEs (consolidated turnover at least EUR 750m) to the tax 
administration of the country where the ultimate parent entity is located. They contain information about a number of 
variables such as revenues, Profit/Loss Before Tax, taxes paid, sales, production etc. at firm level, showing how these 
variables are distributed across headquarters and subsidiaries in the different countries. 
60 There is no more recent data available, the OECD is in the process of obtaining such information for 2019 and 2020.  

39 

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0% - 1,000 2,000 3,000 4,000 5,000 6,000 7,000< 5050  to<100100  to<150150  to<200200  to<250250  to<300300  to<350350  to<400400  to<450450  to<500500  to<550550  to<600600  to<650650  to<700700  to<750Cumulated percentage of MNEs filing consolidated statementsNumber of MNEs filing consolidated statementsSize class of MNEs, consolidated revenue in million EURNumber of MNE filing consolidated financial statementsCumulative percentage (rhs) 
 
 
 
6.3. 

Impact of the three Versions 

Quantifying the effects of the three Versions is difficult, given major data gaps and high uncertainty 
as there is no precedent of a corporate tax reform similar to this. In addition, there are interactions 
between the common rules for the tax base of large groups (BEFIT) and the common approaches to 
transfer pricing which cannot be quantified. For example, applying a common and simplified set of 
rules would impact on how the new common approach to transfer pricing would work in practice.  

The analysis below provides an estimation of the possible costs and benefits of implementation. For 
the  benefits,  the  analysis  looks  at  both  the  direct  pecuniary  savings  for  compliance  costs  of 
businesses and the broader macro-economic impact thereof. For each, the analysis will try to give 
an  upper  and  a  lower  bound  estimation,  based  on  the  three  Versions  of  the  initiative,  as  outlined 
above.  

Table 3: Classification of Versions analysed  

The mandatory scope of the  Comprehensive Version  includes  all groups  regardless  of the size of 
their  annual  combined  revenues.  It  has  hence  a  ‘wide’  scope  of  application.  The  Composite  is 
mandatory only for the largest groups and allows smaller groups to opt in.  

Section 6.3.1 looks at how BEFIT could impact on the direct CIT compliance costs of companies. 
Section 6.3.2 considers the savings associated with transfer pricing specifically. Section 6.3.2 looks 
at  the  broader  impact  of  establishing  a  group-wide  tax  base  and  the  possibility  of  firms  to  offset 
losses against profit across borders. Section 6.3.4 sets out a comprehensive estimation of the costs 
of  implementation  for  businesses  and  tax  administrations,  to  the  extent  possible.  Section  6.3.5 
considers  environmental  or  social  impacts  that  the  initiative  may  have,  and  section  6.3.6  any 
additional impacts such as on fundamental rights and competitiveness.  

6.3.1.  The impact on direct CIT compliance costs 

Using firm-level micro data of the survey-study on companies’ tax compliance costs and combining 
it with EuroGroups data presented in Figure 5 above and the CbCR data, allows us to estimate the 
potential  savings  regarding  CIT-related  compliance  costs.  Note  that,  as  Table  4  below  suggests, 
SMEs  and  in  particular  SMEs  with  no  cross-border  operations  face  the  bulk  of  tax  compliance 
costs, but there is clear scope to reduce tax compliance costs borne by large and small enterprises 
with cross-border presence and that would qualify to opt-into BEFIT.  

40 

"Comprehensive""Light""Composite"Very big groups (cons. turnover > EUR 750m)MandatoryOptionalMandatorySmaller groups MandatoryOptionalOptional 
 
 
Table  4:  Number  of  firms,  absolute  and  average  CIT  compliance  costs  (CC),  cross-tabulated  by 
firm size and cross-border activity, 2019 

Source: Commission services, based on data from VVA/KMPG (2022).  

Simplification via a common tax base and clearer transfer pricing rules have the potential to reduce 
large businesses’ tax compliance costs. This is estimated as follows. We first conduct a regression 
analysis  (see  Annex  4  for  more  detail)  which  reveals  that  there  is  the  potential  for  cross-border 
operating  firms  to  reduce  compliance  costs  by  -32%  if  they  are  subject  to  some  ‘simplified  tax 
system’. This figure holds if one controls for firm characteristics such as size (measured in terms of 
the  number  of  employees  and  turnover).  Without  controlling  for  size,  the  potential  relative 
advantage  of  simplified  tax  regimes  is  double  that  number:  -65%.  This  finding  implies  that  per 
group, the potential of reducing compliance costs tends to be higher if groups are bigger.  

Table 4  above  provides  us  the per company tax compliance cost  for SMEs and larger enterprises 
with cross-border activities: EUR 3,308 for SMEs and EUR 8,266 for larger enterprises. If we use 
the numbers of Figure 5, we see that there are 5,373 MNEs with a turnover of less than EUR 50 
million which can be seen as SME groups, 9,657 MNEs with a turnover in between EUR 50 million 
and  EUR  750  million  and  4,082  MNEs  with  a  turnover  of  EUR  750  million.  A  total  of  19,112 
MNEs. 

If only the very large MNEs with a turnover of EUR 750 million are in BEFIT and we consider a 
32%  cost  reduction  using  the  proxy  obtained  via  the  regression  analysis,  then  the  savings  in  tax 
compliance  costs  are  EUR  11  million  (on  the  original  tax  compliance  costs  of  almost 
EUR 34 million), which would be a lower-bound estimate in the case, considering the above. If we 
then consider a 65% reduction in costs, this represents about EUR 22 million.  

If all other large MNE groups of companies bigger than SMEs opt in, then savings would amount 
to almost EUR 37 million, that is, 32% of today’s EUR 80 million tax compliance costs for these 
MNEs, i.e., EUR 26 million per year plus the EUR 11 million for the EUR 750 million MNEs. If 
we  consider  a  65%  potential  this  would  mean  EUR  74  million.  If  we  were  to  consider  that  also 
SMEs with cross-border presence, i.e., the MNEs in Figure 5 with a turnover of less than EUR 50 
million, then the savings for this group would be 32% of today’s EUR 18 million (the 65% is only 
considered  for  larger  companies),  that  is,  almost  EUR  6  million  in  savings.  In  sum,  if  all  groups 
with  a  cross-border  presence  took  part,  i.e.,  in  the  “Comprehensive”  Version  of  BEFIT  and  in 
“Composite”  Version  of  BEFIT,  then  the  direct  tax  compliance  cost  savings  as  a  result  of 
simplification would be respectively EUR 42 million (32%) as a lower-bound estimate and EUR 80 
million (65%) as an upper-bound estimate.  

41 

noyesTotalCIT CC (bn EUR)46.9                        5.9                          52.8                        .. per enterprise3,223                     3,308                     3,232                     Number of enterprises14,566,027           1,784,673             16,350,700           CIT CC (bn EUR)0.8                          0.3                          1.0                          CIT CC per enterprise9,929                     8,266                     9,436                     Number of enterprises77,939                   32,824                   110,763                 CIT compl. Costs (bn EUR)47.7                        6.2                          53.9                        .. per enterprise3,259                     3,398                     3,274                     Number of enterprises14,643,966           1,817,497             16,461,463           TotalSMELarger Enterpr.Operating cross-country? 
 
 
While these numbers may not sound very large overall, for each of the companies and groups they 
may  still  be  significant  or  non-negligible.  These  savings  could  then  be  spent  on  production 
activities  with  a  positive  impact  on  growth.  Note,  too,  that  the  results  are  derived  from  the 
combination of three datasets and therefore may need to be interpreted with caution. Hence, results 
here  could  be  underestimating  the  true  tax  compliance  costs  of  larger  companies  since  the  per 
company costs are derived from  a study-survey  whose main focus  is  SMEs. These savings could 
then be spent on production activities with a positive impact on growth. 

6.3.2.  Savings associated with harmonising transfer pricing rules and enhancing tax 

certainty for firms and tax authorities 

The  compliance  with  transfer  pricing  rules  imposes  high  costs  for  both  subsidiaries  and  parent 
entities.  This  is  because  it  requires  complex  supporting  documentation  and  high  expenses  on 
external advice and/or personnel time. Moreover, uncertainty about the outcome of tax inspections 
on  transfer  prices  is  quite  high.  As  for  tax  authorities,  the  most  complex  task  today  is  checking 
fairness and compliance of transfer prices with the arm’s length principle. This exercise requires a 
deep  knowledge  of  both  the  underlying  rules  and  of  the  specific  transactions  between  related 
parties. Disproportionate sanctions and tedious tax disputes list among the consequences of transfer 
pricing.  Hence,  both  companies  and  tax  administrations  can  expect  additional  savings  from  the 
proposal on transfer pricing, due to the implementation of simpler/clearer transfer pricing rules and 
because,  for  the  groups  applying  BEFIT,  the  risk  of  transactions  would  be  assessed  based  on 
criteria that provide more predictability. This would reduce significantly: 

•  direct expenses on tax compliance activities related to transfer pricing; 
•  uncertainty about the tax inspections on transfer prices; 
• 

the  efforts  (including  staff  time)  of  tax  authorities  to  define  whether  a  transfer  price 
agreement is compliant or not; 
the number of tax disputes over transfer prices; 

• 

In other words, for both groups and tax administrations, we expect a net reduction of the full-time 
equivalent employees that would be allocated the respective tasks. Correspondingly, there can be a 
significant reduction of legal costs. Chapter 2 already provided an indication of the magnitude of 
litigation and legal costs. These are reported to be in the thousands to millions of euro a year per 
firm. It is expected that the benefits, in terms of cost savings associated with less litigation and legal 
costs, would be higher in the case of the Comprehensive and Composite Versions, than in the Light 
Version, as regular guidance will also be provided. 

6.3.3.  The impact of introducing common EU rules to calculate the tax base of group 

entities and aggregate these into a single EU-level tax base 

BEFIT  will  introduce  a  common  group-wide  corporate  income  tax  base  covering  related  entities 
located in the EU. This has consequences for firms to the extent they are today not able to offset 
certain subsidiaries’ losses against other subsidiaries’ profits. BEFIT will also introduce a common 
set  of  rules  the  calculate  the  corporate  tax  base  of  each  group  member,  and  most  importantly: 
common rules for  the tax  depreciation  of  capital.  This  section looks at  the impact  of these major 
structural changes.  

42 

 
 
6.3.3.1.  Cross-border loss offsetting as a result of an aggregated BEFIT tax base 

A common (group-wide) CIT base automatically brings the advantage of  cross-border loss relief: 
groups can offset losses made by certain subsidiaries against profits made by other subsidiaries. As 
a result, the groups’ CIT base declines, which results in lower CIT tax payments for companies.  

Based on Orbis, a firm-level database, this section attempts to estimate the impact of this offsetting 
of  losses  against  profits  of  the  same  year.  The  intention  is  to  interpret  the  resulting  losses  in  the 
EU’s CIT revenue as a careful estimate for subsidiaries of very big MNEs.  

It is upper-bound to the extent that, as a result of cross-border loss offsetting, there would be fewer 
loss  carry  forward,  as  more  losses  will  be  offset  in  the  year  they  are  made  by  the  group.  The 
analysis does not fully take this into account and the difference in losses carried forward to future 
years cannot be adequately modelled.  

The analysis looks at subsidiaries of MNEs with a turnover of at least EUR 750 million per year. 
These  are  the  groups  for  whom  BEFIT  will  be  mandatory  in  both  the  Composite  and  the 
Comprehensive version. The Orbis-sample for the year 2021 covers some 4.000 MNEs worldwide 
with a turnover of more than EUR 750 million. Of those MNEs, there are unconsolidated accounts 
of  almost  100.000  subsidiaries  in  the  EU,  for  some  80.000  of  whom  there  is  information  about 
profits/losses before tax. Offsetting losses against profits in 2021 would have reduced the EU’s CIT 
base by around EUR 31 billion, equivalent to 0.2% of the EU’s GDP, or to 1.7% of the EU’s total 
CIT tax base. From the companies’ point of view, this would mean lower CIT payments.  

Based on this information, the European Commission’s Joint Research Centre has used its Cortax 
general equilibrium model to estimate the macro-economic impact that would fit this CIT relief for 
firms. As firms pay less CIT, this would lower their cost of capital, inducing them to invest more. 
As CIT payments decline by 1.7%, investment shifts up by 0.2%, pushing up EU GDP by 0.1% in 
the long term.  

6.3.3.2.  Common BEFIT depreciation rules 

BEFIT would bring a harmonisation of depreciation rules in the EU. In a first scenario, a simple set 
of depreciation rules is considered. It assumes that the depreciation for all buildings are set at 28.5 
years (equivalent to straight depreciation of 3.5% p.a.) and at 5 years for all other assets (20%). The 
Joint Research Centre’s Cortax model is used to simulate the impact of these common depreciation 
rules.  

In terms of generosity, these rules would roughly reflect the current average over Member States’ 
rules.  Therefore,  with  these  new  rules  in  place,  total  CIT  revenue  in  the  EU  would  change  only 
slightly (decline by 0.7%), pushing the capital stock up by 0.1% and GDP by some +0.04%.  

To  demonstrate  the  impact  of  alternative  depreciation  rates,  a  second  scenario  foresees  longer 
straight-line  depreciation  of  commercial  buildings  over  40  years  (i.e.,  only  2.5%  per  year),  while 
industrial buildings would be depreciated over 25 years. Other than buildings, fixed tangible assets 
would in this case be depreciated over 7 years (14%), and intangible assets over 5 years (20%). Due 
to longer deprecation of commercial buildings and other tangible assets, these rules seem somewhat 
stricter than is reflected by the average of existing national rules in the EU.  

43 

 
 
As a result, a second simulation with Cortax finds that the new rules tend to increase the EU’s CIT 
base,  and  thereby  CIT  revenue  by  some  6%.  The  decline  in  depreciation  allowances  would  thus 
produce  a  surplus  in  a  government’s  budget  in  the  short  term,  but  also  an  increase  in  the  cost  of 
capital for firms. The latter would reduce somewhat the incentive for firms to invest. This would 
possibly  lead  to  a  decline  in  the  capital  stock,  with  eventual  negative  consequences  in  terms  of 
GDP.  

6.3.3.3.  Overview of the structural effects of BEFIT 

The table summarizes the last two sections’ simulation results.  

Cross-border loss relief (simulated for MNEs >750m) 
Common depreciation (simulated for all MNEs) 
----- Scenario 1 
----- Scenario 2 
Better legal certainty due to common rules 

CIT tax 
revenue 

Total tax 
revenue 

Capital  

GDP 

-1.7% 

-0.02% 

+0.2% 

+0.1% 

-0.7% 
+6% 

-0.02% 
+0.05% 
not quantifiable 

+0.1%  +0.04% 
-0.3% 
-0.7% 

The effects  of  changing  depreciation rules  described in  the previous section were  calculated with 
Cortax  assuming  that  depreciation  was  introduced  for  all  MNEs,  while  the  proposal  would  only 
mandatorily apply to a sub-set of MNEs above a turnover threshold of EUR 750 million (smaller 
businesses would be able to opt in on a voluntarily basis). This is the reason why they cannot be 
directly  compared  with  the  effects  stemming  from  the  cross-border  loss  relief.  The  latter  was 
explicitly calculated for MNEs with a turnover of at least EUR 750 million.  

There are an estimated about 4.000 MNEs beyond that turnover threshold and some 14.000 MNEs 
below as shown in Figure 5 above. That is, MNEs with turnover of EUR 750 million or more make 
roughly  one  fifth  of  all  MNEs  potentially  in  scope  of  BEFIT.  All  else  being  equal,  the  positive 
GDP-effect of the cross-border loss relief would therefore have been stronger had all MNEs been 
included in the analysis (which did not happen because smaller MNEs are less well represented in 
Orbis).  

Moreover, there are positive second-round effects due to better tax transparency and legal certainty 
as firms in scope would face only one common set of CIT rules. The resulting productivity-increase 
is not included in the above analysis and is expected to lead to a positive aggregate effect of BEFIT 
on GDP in the long run. Altogether, the BEFIT package is therefore likely to increase GDP. 

6.3.4.  The impact of formulary apportionment as a method to allocate the BEFIT tax 

base 

As  for  the  allocation  of  the  BEFIT  tax  base  (section  5.2.1.3),  options  1  and  2  foresee  the 
introduction of an apportionment formula. The allocation formula would, after establishing an EU-
wide CIT base of MNEs, apportion that aggregated tax base following a number of factors. These 
are  in  option  1  as  follows:  labour  (which  can  include  payroll  and/or  the  number  of  employees), 
tangible assets, and sales by destination. Option 2 also includes intangible assets as a factor in the 
formula.  Based  on  the  OECD’s  statistics  of  Country-By-Country  Reporting  (CbCR,  see  Annex  4 
for explanation), the EU as a whole would gain additional CIT revenue in the short term which may 

44 

 
 
 
 
 
 
 
be in the order of magnitude of some 0.1% of GDP, assuming that only MNEs with a turnover of at 
least EUR 750 million are included. This holds true both when including (option 2) or not including 
(option 1) intangible assets in the formula.  

The impact may nevertheless affect Member States differently. This means that in the shorter term, 
some Member States may have significant benefits, while for other Member States there may not 
be a direct gain. It is difficult to estimate the effects accurately, given uncertainties and limited data 
availability. Therefore, option 3 considers an allocation of the BEFIT tax base that ensures stability 
during a transition. During this transition, it will be possible to estimate the impact of the new tax 
base and potential effects of introducing formulary apportionment with more accuracy. 

6.3.5.  Costs for companies and tax administrations 

Costs cannot be estimated with any precision because the new initiative does not have a precedent 
that we can refer to. Moreover, there is no dedicated data that one can reliably use to produce very 
concrete  estimates.  It  is  also  noteworthy  that  under  the  public  consultation  and  dedicated 
stakeholder consultations (including MNEs and tax administrations) estimations of such costs were 
not provided, not even at a qualitative level. This is primarily because a business has to know the 
technical  details  of  a  new  system  to  simulate  its  cost.  In  addition,  the  cost  is  expected  to  differ 
substantially depending on the business model. For instance, an in-scope group which is centrally 
organised should be expected to have less costs than a retail group that maintains a large number of 
subsidiaries. Below, we attempt to describe some of the possible costs, noting that these are likely 
to  be  relatively  very  small  when  compared  to  the  potentially  large  cost  savings  derived  from 
simplification.  

Concerning  tax  administrations,  a  holistic  picture  is  hard  to  obtain.  There  are  fundamental 
differences  in  capacity  and  expertise  between  Member  States’  authorities,  and  the  workload  will 
depend  on  the  amount  of  Filing  Entities  (i.e.,  ultimate  parent  entities,  or  if  there  is  no  ultimate 
parent entity, the designated filing entity) that are present in each respective Member State. For this 
purpose,  the  administrations  would  need  to  dedicate  resources  so  that  the  BEFIT  Information 
Returns  can  be  filed  by  their  resident  Filing  Entities.  The  administrations  have  to  transmit  these 
BEFIT  Information  Returns  to  the  other  administrations  where  the  BEFIT  group  has  its  taxable 
presence  and  chair  a  BEFIT  Team  including  those  administrations.  Smaller  Member  States,  with 
less resources in their public sector, would be unlikely to accommodate a large number of MNEs 
headquartered in their territory. So, the fact that these Member States may be short of resources is 
unlikely to create a concern in practice, assuming that these Member States would accommodate a 
small number (if any) of Ultimate Parent Entities (UPE). 

Regarding the BEFIT Teams, while there will have to be a Team for each BEFIT group, this is not 
expected to result in substantial additional costs (other than setting up a simple communication and 
consultation tool) but rather in a re-allocation of existing resources. This is because a BEFIT Team 
brings together tax inspectors from  the Member  States where the group  operates.  Instead of each 
Member State separately dedicating human resources to assess the tax liabilities of the same cross-
border  groups,  these  available  resources  will  now  be  used  collectively  in  a  more  effective  and 
targeted  manner.  Each  inspector  would  be  responsible  for  the  group  entities  in  their  own 
jurisdiction. In  addition,  Member States already  need to  dedicate resources to  cross-border issues 
that  require  agreement  between  different  Member  States,  and  to  lengthy  disputes  or  procedures. 
Finding  consensus  on  some  of  these  issues  within  the  BEFIT  Team  and  based  on  common 
standards would also be a more efficient re-allocation of existing resources.  

45 

 
 
When  considering  the  Composite  and  Light  Versions  in  implementing  the  common  rules  for 
computing  the  tax  base  (BEFIT),  which  would  be,  respectively,  either  primarily  directed  at  large 
groups  with  annual  combined  revenues  exceeding  EUR 750  million  or  entirely  optional,  the 
following costs are expected to be incurred:  

1.  Recurrent costs of adjustment and administrative nature, which include personnel time:  

a) for tax administrations, dealing with the BEFIT Teams: costs associated with exchanging 
information on the content of the Information Return and checking compliance with the risk 
assessment mechanism of the ‘traffic light system’;  

b) for the Filing Entity for the group, which aggregates all the preliminary tax results: costs 
associated with filling in the Information Return and submitting it to the tax authorities;  

c)  for  tax  administrations:  additional  costs  associated  with  coordinating  action  among 
different tax authorities in case of tax inspections; 

2.  One-off  adjustment  costs  for  groups  and  tax  administrations  associated  with  updating  IT 
systems to calculate the tax base or other administrative systems to run any related exchanges of 
information;  

3.  One-off adjustment costs for the training of company staff and tax administrations to adjust to 

the new system.  

Some of these costs may not actually be additional costs. Companies and notably the Parent Entity, 
which may also be the Filing Entity, already prepare consolidated financial statements. The groups 
of  companies  which  fall  within  the  scope  of  BEFIT  already  prepare  consolidated  financial 
statements in accordance with the requirements of their national accounting standard. The financial 
accounting statements which are used as a starting point for computing the tax base are therefore 
already  available  and  would  not  require  taxpayers  to  undertake  additional  compliance  actions. 
Furthermore,  the  infrastructure  for  carrying  out  exchanges  of  information  is  already  in  place  as 
Member States engage in exchanges of information, including automatic exchanges, in a variety of 
fields under the Directive on Administrative Cooperation61. This said, companies will still need to 
invest in IT software updates and new programmes, to facilitate the computation of the tax base in 
accordance with the new rules. Yet, the cost will be substantially lower, as compared to what this 
would amount to if it also included an installation of hardware. There will also be a possibility of 
receiving EU financial support.  

When  it  comes  to  tax  administrations,  one  should  consider  that  in  several  Member  States’  tax 
administrations,  there  is  currently  personnel  dealing  with  corporate  income  tax  files  that  involve 
groups within the mandatory scope of BEFIT. This staff would need to be trained, which should be 
seen  as  a  one-off  cost  for  tax  administrations,  and  change  job  description,  in  order  to  shift  into 
working on BEFIT groups. As explained above, these officials would most possibly also participate 
in the BEFIT Team of their assigned groups. 

61  Council  Directive  2011/16/EU  of  15  February  2011  on  administrative  cooperation  in  the  field  of  taxation  and 
repealing Directive 77/799/EEC, OJ L 64, 11.3.2011, p. 1–12. 

46 

 
 
 
Regarding  training,  the  costs  are  expected  to  be  limited  as  the  simplification  of  the  rules  also 
translates in fewer staff needed to undergo such functions at company group level and in national 
tax administrations. It should accordingly be noted that for the latter, EU funding could be available 
to support national administrations. This is also possible in the case of item 1.c) above. 

When  considering  the  Composite  and  Light  Versions  in  connection  with  transfer  pricing,  there 
will not be any additional costs for large groups or national administrations, as there are currently 
large  numbers  of  staff  dealing  with  transfer  pricing  in  each  Member  State.  The  change  will 
therefore mostly consist of a limited re-assignment of tasks/ job descriptions and as said, a possible 
and likely reduction of full-time equivalent staff allocated to these tasks.  

Under  the  Comprehensive  Version,  some  additional,  short-term  adjustment  and  perhaps  non-
negligeable administrative costs could be generated for smaller groups who would face mandatory 
rules for the computation of their tax base (BEFIT). Indeed, for smaller groups, there could be a 
need to learn and adapt to the new rules for the calculation of the tax base. The costs would mostly 
be those listed above for BEFIT. Under the Composite Version, the companies under BEFIT would 
be likely  to  already undergo similar tasks and costs. However,  the Comprehensive Version  could 
possibly have the effect that many, especially small, groups would have to face a large adjustment 
and start some of the tasks anew. Accordingly, for tax administrations, the fact that a larger number 
of groups would fall in scope could require some additional oversight costs.   

Hence, when comparing the benefits shown in previous sections with the possible costs discussed 
here,  one  could  claim  that  benefits  would  be  expected  to  make  up  for  the  costs  notably  when  it 
comes  to  the  Composite  Version.  This  could  generate  significant  savings  associated  with  the 
reduction  in  tax  compliance  costs  and  with  important  expected  macroeconomic  effects  from  the 
investment  (which brings  higher GDP and higher tax revenue).  It  would  be the outcome of freed 
resources and additional cross-border activity (which increases productivity and eventually leads to 
an  increase  in  EU  GDP)  at  expected  low  cost.  Under  the  Light  Version,  as  it  is  optional,  the 
benefits would be much lower, although at similar low costs. The Comprehensive Version would 
give rise to  benefits  on the high  end, but  some administrative costs would also  be higher.  In this 
context,  one  would  expect  that  the  Composite  Version  be  the  most  cost-effective.  Chapter  7 
accommodates  a  comparison  of  options  in  terms  of  how  they  could  contribute  to  achieving  the 
identified objectives of this initiative.    

The  quantification  of  costs  is  extremely  difficult  for  a  multitude  of  reasons.  The  absence  of  a 
precedent  of  comparable  magnitude  to  the  initiative  leaves  little  room  for  solid  cost-estimation 
based  on  historical  data.  What  is  more,  the  nature  of  the  initiative  is  cost  reduction  through 
significant simplification. Costs linked to the introduction  are therefore transitional of nature as 
both  tax  administrations  and  businesses  will  have  to  adjust  to  the  new  rules.  Much  of  these 
adjustments will be linked to  the phasing-in  of  new  IT solutions,  or upgrade of existing  systems. 
Both taxpayers and tax administrations will have to make that investment.  

For businesses, a point of orientation may be the 2022 Commission proposal regarding VAT rules 
for the digital age62 (ViDA) which suggests  an EU-wide digital  reporting requirement (DRR) for 

62  Proposal  for  a  Council  Directive  amending  Directive  2006/112/EC  as  regards  VAT  rules  for  the  digital  age. 
COM(2022) 701 final. Available here. 

47 

 
 
 
VAT,  preferably  for  intra-EU  transactions.  One  of  the  main  objectives  is  to  standardise  the 
information that needs to be submitted by taxable persons on each transaction to the tax authorities 
in  an  electronic  format.  While  the  nature  of  ViDA  is  different,  there  are  similarities  to  the 
envisaged initiative. For example, there are administrative costs of implementation and linked to 
running a digitally supported, more standardised system  that enables the exchange of information 
between firms and authorities.  

The  Impact  Assessment  associated  with  the  proposal  for  the  VAT  in  a  digital  age  (hereafter:  IA 
ViDA)63, which is in turn supported by a dedicated study (hereafter: ViDA study)64, reckons that 
DRRs  generate  administrative  burdens  in  the  form  of  implementation  costs  and  ongoing  costs. 
Implementation  costs  include  acquiring  physical  and  intangible  capital,  know-how.  These 
investments will turn into costs as they are written off, resulting in annualised costs. Ongoing costs 
mainly  cover  recurrent  expenses  for  personnel  running  the  system.  Already  today,  there  are  a 
number of different DRR systems in the EU. Among those, SAF-T (Standard Audit File for Tax) is 
a  file  containing  reliable  accounting  data  exportable  from  an  original  accounting  system,  for  a 
specific time period and easily readable due to its standardisation of layout and format that can be 
used by authority staff for compliance checking purposes. One of its possible uses is the reporting 
of  transaction  data.  Therefore,  while  of  course  not  tailored  to  the  envisaged  initiative,  SAF-T  is 
relatively close to what is needed, i.e., the exchange of accounting information and transactions, 
based on a simple standardised file that can be read by firms and authorities across the EU.  

SAF-T today is  in  place in  Lithuania, Poland and Portugal.65  Based on the existing  evidence, the 
ViDA  study  has  come  up  with  an  estimation  of  the  implementation  costs  and  ongoing  costs 
imposed  by  the  application  of  SAF-T  per  company  and  year.  Four  firm  size  classes  are 
distinguished,  see  columns  2  to  4  in  Table 5.  The  study  covers  the  first  ten  years  after 
implementation  of  SAF-T.  One-off  costs  are  annualised  through  depreciating  physical  and 
intangible investment over a period of five years.66  

Table 5: SAF-T system: implementation and ongoing costs, EUR per year and firm (annualised) 

Distribution  of  taxable  persons  potentially  covered  by  DRR  (intra-EU  transactions  only).  Source:  ViDA  IA,  pp.  139-140  for  the 
distribution of firms. 
Other sources: ViDA Study, pp. 44-45 for the cost per firm (col. 1 to 3); Table 4 above for the absolute firm population, TAXUD 
calculations. 
Remark: Definition of Micro companies: less than 10 employees; small companies: 10-49 employees; medium-sized companies: 50-
249 employees; large companies: 250 employees and over. 

63 Impact assessment report - SWD(2022)393. Available here. 
64 European Commission, Directorate-General for Taxation and Customs Union, Luchetta, G., Giannotti, E., Dale, S. et 
al.,  VAT  in  the  digital  age  –  Final  report.  Volume  1,  Digital  reporting  requirements,  Publications  Office  of  the 
European Union, 2022, https://data.europa.eu/doi/10.2778/541384. 
65 ViDA IA, p. 14. 
66 ViDA Study, p. 43. 

48 

Implemen- tationOngoing costsTotalEUR/year/firmAll SME   Micro13080210         Small620290910         Medium10602501,310    Large19005702,470   
 
 
 
Taking  these  costs  per  firm  as  a  reference,  one  can  use  them  to  calculate  the  cost  per  group  of 
companies in BEFIT. Using the number of groups in Figure 5 above, namely that we have a total of 
19,112 MNEs (of which 4,082 are MNEs with a turnover of EUR 750 million and 5373 and SME 
groups). 

If we consider all possible large MNEs in scope of BEFIT and that they face administrative costs of 
EUR 570  on  average  per  year,  this  makes  a  total  cost  of  some  EUR  8  million  per  year  for  these 
MNEs. The cost for SME groups would be (taking an average value of EUR 207 for SMEs) a total 
of about EUR 1 million. This means total recurrent administrative costs of about EUR 9 million. In 
the  long  run,  these  costs  are  expected  to  decline  due  to  learning  effects.  Following  a  similar 
process,  we  obtain  the  following  one-off  costs  due  to  the  implementation  of  the  initiative,  this  is 
EUR 29 million. One can see these costs as an upper-bound estimate as the frequency of reporting 
information for BEFIT purposes to tax authorities will be (much) lower than would be the case for 
transaction-based information exchanges in the context of VAT.  

This  means  that  a  direct  comparison  with  the  cost  estimates  for  the  ViDA  proposal  may 
overestimate the implementation costs of this initiative. For this reason, if we were to consider only 
half of the costs estimated in relation to SAF-T, then a lower-bound estimate would correspond to 
one-off costs of about EUR 15 million and recurrent costs of around EUR 5 million per year. 

For tax administrations, the annual costs of DRR in the form of SAF-T systems are much lower 
than for businesses. A consultation amongst tax administrations where SAF-T is in place resulted in 
estimated  one off  costs  of up to  EUR 11 million  and  per Member State, i.e., a total  of EUR 297 
million.67  Likewise,  this  amount  covers  the  cost  induced  by  all  firms  who  have  to  deal  with  the 
administration of VAT, whereas the number of MNEs in scope of the initiative is much smaller. 

6.3.6.  Environmental and social impacts 

No particular and direct environmental impact is expected. Indirectly, one could perhaps consider 
that the resources freed from tax compliance costs could be used by companies to invest in more 
environmentally sustainable production methods if companies wished. Regarding employment and 
social  impacts,  resources  freed  from  tax  compliance  costs  could  be  used  in  productive  activities. 
These in turn could mean hiring new staff and/or training new staff. Alternatively, companies could 
choose  to  use  the  extra  resources,  in  order  to  pay  higher  wages.  In  both  cases,  this  could  have  a 
potential  positive  employment  and  social  impact.  Additional  resources,  either  as  savings  or 
generated  via  investment  could  also  be  distributed  among  shareholders.  It  is  however  difficult  to 
estimate such impacts with precision since they would depend on the decision of each company on 
how to use its additional spare resources.  

6.3.7.  Additional impacts 

The  analysis  also  considered  whether  the  initiative  may  impact  fundamental  rights.  It  is  not 
expected that there would be a considerable effect. The initiative would contribute to levelling the 
playing field, removing cross-border barriers, and providing certainty. While that does not mean the 
problems outlined in Chapter 2 lead to any discrimination or unjustified restrictions, this could be 

67 ViDA Study, p. 33. 

49 

 
 
 
beneficial  for  equal  treatment,  the  freedom  to  conduct  a  business  and  the  protection  of  property. 
The proposal will also ensure that the protection of personal data is guaranteed.  

The impacts  on  competition  have also  been taken into account,  as described, for instance, in  the 
competitiveness check in Annex 5. Certain policy options are more likely to have such impact than 
others.  For  example,  for  BEFIT,  the  options  for  the  scope  will  be  a  decisive  factor.  An  optional 
scope  under  the  Light  Version  may  be  cost-efficient  as  it  will  allow  businesses  that  are  likely  to 
benefit to opt-in but it would nevertheless be less effective in reducing complexity or levelling the 
playing field. The Comprehensive Version, on the other hand, would be more effective but would 
not  necessarily  reduce  compliance  costs  for  all  groups  of  companies  as  it  does  not  consider 
differences in size and activities. Finally, the Composite Version seems to strike a balance between 
ensuring a level playing field for the groups of companies that are most likely to be affected by the 
current  differences  in  the  internal  market  but  without  increasing  compliance costs for groups that 
are less likely to benefit from a single set of rules.  

7.  HOW DO THE OPTIONS COMPARE? 

The initiative has three general objectives: to simplify tax rules, to stimulate growth and investment 
in the EU, and to ensure fair and sustainable tax revenues for Member States (Chapter 4). These are 
to  be  achieved  through  several  specific  objectives:  reducing  tax  compliance  costs;  encouraging 
cross-border expansion; tackling distortions in the internal market and thereby levelling the playing 
field;  reducing  risks  of  double  and  over-taxation  as  well  as  of  tax  disputes;  and  increasing  tax 
certainty for businesses (Chapter 4). To fulfil the envisaged objectives in the most efficient way, the 
assessment  considers  three  Versions  that  are  designed  on  the  basis  of  different  combinations  of 
policy options (Chapter 5) and, accordingly, have different impacts (Chapter 6).  

In  this  Chapter,  we  compare  effectiveness  and  efficiency  of  the  three  Versions  and  check  their 
coherence with existing policies of the Commission in the field of direct taxation. The tables below 
show a scale that indicates to what extent each of the three Versions contributes to achieving the 
envisaged specific objectives and in turn the general objectives. The scale is based on the following 
four steps:  (0) irrelevant/no change, (+) limited  contribution,  (++) partial contribution,  and  (+++) 
substantial contribution. 

50 

 
 
7.1.  Comprehensive  Version:  Mandatory  for  all  with  the  highest  degree  of 

harmonisation and immediate application 

 Comprehensive Version: Mandatory for all and fully-fledged corporate tax base 

Objectives 

To reduce tax 
compliance 
costs 

To encourage 
cross-border 
expansion 

To tackle 
distortions in 
the market 
and thereby 
level the 
playing field 

To reduce the 
risk of double 
and over 
taxation and 
tax disputes 

To increase tax 
certainty and 
fairness for 
businesses 

BEFIT 
Scope: Mandatory 
for all EU members 
of groups  
Tax base: 
Comprehensive set of 
tax rules  
Allocation of the 
aggregated tax base:  
Formulary 
apportionment with 
intangible assets  
Transactions with 
associated 
enterprises outside 
the group: Simplified 
approach to transfer 
pricing risk 
assessment  
Administration: 
Advanced One-Stop-
Shop  
Rating for BEFIT 

Common 
Approaches to TP 
Inclusion of the 
OECD arm’s length 
principle and 
Transfer Pricing 
Guidelines in EU 
law and coordination 
towards common EU 
Guidance 
OVERALL 
RATING 

+ 

+ 

++ 

++ 

++ 

0 

+ 

++ 

+ 

+ 

++ 

++ 

++ 

0 

+++ 

+++ 

+ 

+ 

0 

++ 

++ 

+++ 

+++ 

+++ 

++ 

++ 

+ 

++ 

++ 

++ 

+++ 

++ 

++ 

+++ 

+++ 

++ 

++ 

+ 

++ 

++ 

51 

 
 
 
 
 
 
 
Effectiveness: 

•  The mandatory-for-all character of this version in combination with the common rules for 
computing  the  tax  base  should  diminish  the  differences  between  corporate  tax  systems. 
Version  1  therefore  substantially  contributes  to  eliminating  distortions  in  business 
decisions caused by the interaction of disparate tax systems and also the risk for double- 
and over-taxation. The inclusion of the arm’s length principle in EU law and the prospect 
for common approaches among Member States to the interpretation of the OECD Transfer 
Pricing  Guidelines  also  contributes  substantially  to  eliminating  double  taxation.  This 
outcome would also enhance tax certainty and fairness for taxpayers. 

•  A mandatory-for-all system is expected to encourage cross-border expansions due to the 
common rules. However, this positive effect could be significantly mitigated, especially at 
the outset, by the introduction of a fully-fledged corporate tax system, which would involve 
high  transition  costs.  This  could  cause  a  temporary  set-back  for  many  EU  businesses, 
notably groups of a smaller size and with less resources. 

Efficiency: 

•  The  mandatory  character  for  all  is  likely  to  create  important  costs  for  compliance  for 
groups of companies of a smaller size. These would primarily be one-off costs linked to the 
transition  towards  a new tax system  and in the longer term, could contribute, in  a limited 
manner,  to  the  reduction  of  compliance  costs.  The  expected  decrease  in  the  numbers  of 
transfer pricing disputes should bring some cost-savings but this would not necessarily be 
enough to make up for the expenses of the new BEFIT administrative structures that 
would apply to all groups of companies. 

7.2.  Light  Version:  Optional,  with  the  least  degree  of  harmonisation  including  a 

transition allocation rule 

Light Version: Optional, with the least degree of harmonisation including a transition allocation rule 

Objectives 

To reduce tax 
compliance 
costs 

To encourage 
cross border 
expansion 

To tackle 
distortions in 
the market 
and thereby 
level the 
playing field 

To reduce the 
risk of double 
and over 
taxation and 
tax disputes 

To increase tax 
certainty and 
fairness for 
businesses 

++ 

+++ 

0 

+ 

0 

BEFIT 

Scope: Optional 
for all EU 
members of 

52 

 
 
 
 
 
 
 
+++ 

+++ 

++ 

groups  
Tax base: 
Limited tax 
adjustments 
Allocation of the 
aggregated tax 
base: Transition 
allocation rule 
Transactions 
with associated 
enterprises 
outside the 
BEFIT group: 
Keep the current 
transfer pricing 
principles 
Administration: 
Limited One-
Stop-Shop 
Rating for 
BEFIT 

Common 
Approaches to 
TP 
Inclusion of the 
OECD arm’s 
length principle 
and Transfer 
Pricing 
Guidelines in EU 
law  
OVERALL 
RATING 

Effectiveness 

++ 

0 

+ 

++ 

+ 

++ 

0 

0 

+ 

+ 

0 

+ 

++ 

+++ 

+ 

+ 

++ 

+ 

0 

0 

+ 

++ 

+ 

+ 

++ 

++ 

++ 

+ 

+ 

+ 

+ 

+ 

•  The  optional-to-all  scope  of  this  Version  demonstrates  some  degree  of  effectiveness  in 
reducing compliance costs, but the optionality has no effect on tackling distortions in the 
market, or increasing tax certainty for taxpayers. There is only limited effectiveness in 
reducing double taxation.  

•  Under an optional scope, the ‘traffic light system’ can still contribute, to a limited extent, 
to preventing double taxation and securing tax certainty, in particular, for taxpayers.  

•  The  inclusion  of  the  arm’s  length  principle  in  EU  law  would  contribute  to  having  less 
divergent interpretations of the OECD Transfer Pricing Guidelines and to eliminating 
double  taxation  as  well  as  to  enhancing  tax  certainty  and  fairness  for  taxpayers. 
However,  in  the  absence  of  EU  coordination  on  future  revisions  of  these  Guidelines,  its 
effectiveness would be limited.  

53 

 
 
 
 
 
•  For  groups  that  may  be  planning  to  expand  across  the  border,  simplification  would 
broadly  address  most objectives and notably,  the reduction of compliance costs and the 
avoidance of double taxation.  

Efficiency 

•  This Version shows limited efficiency because, by making optional the scope of BEFIT, it 
would involve, for tax administrations, the setting up a new tax system without knowing 
how many eligible groups will opt in. In other words, it could be too costly an exercise and 
cost-ineffective in delivering on the objectives. 

•  Legislating to integrate the OECD arm’s length principle in EU law, without including 
any dynamic reference to the OECD Transfer Pricing Guidelines, would be an inefficient 
way  to  achieve  the  objectives  of  this  initiative,  as  it  would  require  that  a  new  EU  legal 
instrument be proposed each time that the Guidelines are revised. 

7.3.  Composite Version: Features of mandatory harmonisation including a  transition 

allocation rule 

Composite Version: Features of mandatory harmonisation including a transition allocation rule 

Objectives 

To reduce tax 
compliance 
costs 

To encourage 
cross border 
expansion 

To tackle 
distortions in 
the market and 
thereby level 
the playing 
field 

To reduce the 
risk of double 
and over 
taxation and 
tax disputes 

To increase tax 
certainty and 
fairness for 
businesses 

BEFIT 

Scope: ‘Hybrid’, 
i.e., mandatory 
for all EU 
members of 
groups with 
annual combined 
revenues 
exceeding a 
certain threshold 
and optional for 
EU members of 
groups with 
revenues below 
this  

++ 

+++ 

+++ 

++ 

0 

54 

 
 
 
 
 
 
 
+++ 

++ 

+ 

+ 

++ 

++ 

0 

++ 

++ 

++ 

+++ 

+ 

+ 

0 

++ 

+++ 

+++ 

++ 

++ 

++ 

++ 

++ 

++ 

++ 

++ 

++ 

0 

++ 

+++ 

+++ 

++ 

++ 

++ 

+++ 

++ 

Tax base: 
Limited tax 
adjustments 
Allocation of the 
aggregated tax 
base: Transition 
allocation rule 
Transactions 
with associated 
enterprises 
outside the 
BEFIT group: 
Simplified 
approach to 
transfer pricing 
risk assessment  
Administration: 
Hybrid One-Stop-
Shop  
Rating for 
BEFIT 

Common 
Approaches to 
TP 
Inclusion of the 
OECD arm’s 
length principle 
and Transfer 
Pricing 
Guidelines in EU 
law and 
coordination 
towards common 
EU positions 
OVERALL 
RATING 

Effectiveness 

•  For the groups of companies within the mandatory scope of BEFIT, the system achieves high 
effectiveness  in tackling market distortions and  reducing the risk of double taxation and 
tax disputes. However, the overall picture, as it also includes the optional element for groups 
below  the  agreed  threshold,  eventually  contributes  only  partially  to  the  above  objectives.  It 
could be that over time it becomes attractive to more firms, increasing its effectiveness. 

•  For groups that may be planning to expand across the border, the options above contribute 
effectively to this objective because the rules are optional and therefore, can be used by those 
who can benefit from the system.  

55 

 
 
 
 
 
•  The  aggregation  of  tax  bases  within  the  group  and  a  common,  simple  method  for  allocating 
income would contribute to reducing instances of double taxation as well as disputes. As a 
result,  there  will  be  less  costly  procedures  related  to  transfer  pricing.  However,  this 
contribution would be partial, if compared to the overall picture, because it would only concern 
the BEFIT group members. So, double taxation will persist amongst those outside the scope of 
the  BEFIT  and,  possibly,  in  transactions  between  BEFIT  group  members  and  entities  outside 
the group. 

Efficiency 

•  Although  the  OSS  will  involve  one-off  costs,  in  order  to  be  set  up  (i.e.,  staff  training,  IT 

systems, etc.), the BEFIT Teams would contribute to some degree of tax certainty. 

•  Keeping  the  rules  optional  for  groups  outside  the  mandatory  scope,  would  allow  them  to 
choose the simplest and most cost-efficient option. Such a prospect would  maximise the 
potential positive effects of BEFIT. 

•  As it is difficult to estimate the effect of formulary apportionment as a method for allocation 
of the BEFIT tax base with accuracy, given uncertainties and limited data availability, this 
option also appears more efficient for the general objective to ensure the sustainability tax 
revenues. A transition rule ensures stability and allows to estimate the impact of the new tax 
base and potential effects of introducing formulary apportionment with more accuracy.  

7.4.  Overall comparison and Coherence with other EU policies 

How Do the Versions Rate in Achieving the Objectives? 

To reduce tax 
compliance 
costs 

To encourage 
cross border 
expansion 

++ 

++ 

To tackle 
distortions in 
the market 
and thereby 
level the 
playing field 
+ 

To reduce the 
risk of double 
and over 
taxation and 
tax disputes 

To increase tax 
certainty and 
fairness for 
businesses 

++ 

++ 

++ 

+ 

+ 

++ 

++ 

++ 

++ 

++ 

+++ 

++ 

56 

Comprehensive 
Version: Mandatory 
for all and fully-
fledged corporate 
tax base 
Light Version:  
Optional, with the 
least degree of 
harmonisation 
including a 
transition allocation 
rule 
Composite Version: 
Features of 
mandatory 
harmonisation, 

 
 
 
 
 
including a 
transition allocation 
rule 

7.4.1.  Comparison between the Three Versions: The Trade-offs 

The  Comprehensive  Version  provides  for  the  most  extensive  degree  of  harmonisation,  which 
implies that its  features  score high  in  effectiveness  (i.e., substantially or  partially effective) when 
they are assessed against the specific objectives of the initiative. On the other hand, the components 
of this Version lose in efficiency, as they are quite expensive to run, in particular when it comes to 
setting  up  the  requisite  administration  structures  for  operating  a  OSS.  In  addition,  it  would  be  a 
difficult exercise for Member States to compromise for political agreement on a fully harmonised 
corporate tax system. 

The  Light  Version,  on  the  other  hand,  stands  on  the  opposite  side  of  the  spectrum.  Its  features 
allow  a  significant  degree  of  fragmentation  to  persist  and  on  this  basis,  their  effectiveness  in 
achieving the objectives is assessed to be lower than under the Comprehensive Version. However, 
the  discretion  that  this  Version  allows  Member  States  could  make  political  agreement  easier  to 
obtain,  especially  if  Member  States  consider  that  their  businesses  can  reap  some  simplification 
benefits in an efficient manner, meaning without a need for very costly investments on the side of 
the  tax  administrations.  In  addition,  given  that  BEFIT  would  be  optional,  groups  of  companies 
would only opt in if they were convinced that the benefits would make up for the costs involved in 
transitioning to the new system. 

Finally,  the  Composite  Version  scores  the  highest  of  the  three  Versions  because  it  not  only 
proves effective in achieving the specific objectives of the initiative but in addition, demonstrates 
efficiency,  as  its  limited  mandatory  scope  is  delineated  to  solely  include  those  groups  who  can 
mostly  benefit  from  the  common  rules  and  can  afford  the  transition.  Furthermore,  it  envisages  a 
method of allocation based on previous years’ tax results, which would ensure the sustainability of 
national  tax  revenues  and  allow  for  a  possible  future  evaluation  of  a  formulary  apportionment 
method. 

7.4.2.  Coherence with other EU Policies 

Other EU policies in the area of corporate taxation include the Parent-Subsidiary Directive, Interest 
& Royalty Directive, the Merger Directive68, the ATAD, and the Pillar 2 Directive. These policies 
address  double  taxation  in  cross-border  payments  of  dividends,  interest,  and  royalties  as  well  as 
mismatches between national corporate tax systems that arise in cross-border situations.  

BEFIT  would  be  specific  to  groups.  Where  there  is  an  overlap  in  scope  with,  for  instance,  the 
Parent-Subsidiary  Directive,  BEFIT  would  prevail  as  lex  specialis.  Other  policies  such  as  the 
ATAD  would  act  as  a  complement  to  BEFIT  for  anti-tax  abuse,  which  can  be  clarified  in  the 

68  Council  Directive  2009/133/EC  of  19  October  2009  on  the  common  system  of  taxation  applicable  to  mergers, 
divisions,  partial  divisions,  transfers  of  assets  and  exchanges  of  shares  concerning  companies  of  different  Member 
States and to the transfer of the registered office of an SE or SCE between Member States.  

57 

 
 
 
 
proposal,  and  certain  specific  adjustments  to  the  interest  limitation  rule  would  be  integrated  for 
consistency. For the interaction with the Pillar 2 Directive, see Chapter 1 and Annex 6.  

Comparing  the  different  Versions,  it  should  be  noted  that  each  Version  consists  of  the  same 
building  blocks  and  coherence  will  mainly  be  ensured  at  a  technical  level.  Nonetheless,  the 
Comprehensive and Composite Versions almost obtain the same rating in achieving the objectives 
but experiences from other initiatives, e.g., UNSHELL and DEBRA, show that Member States are 
often  only  willing  to  agree  to  common  rules  that  are  strictly  necessary.  Chances  for  a  successful 
outcome are therefore more likely for the Composite Version. This is also coherent with the Pillar 2 
Directive  (as  it  will  be  largely  based  on  the  same  rules  for  adjusting  the  financial  accounting 
statements for tax purposes). Regarding Pillar 1, it seems that BEFIT can accommodate where there 
is an overlap in the two systems. For more details, see Chapter 1 and Annex 6. 

From a broader perspective, the initiative would also interact with other policies. The agreement of 
common  approaches  to  transfer  pricing  may  establish  a  level  playing  field  and  ensure  a  stronger 
legal  base  in  the  fight  against  aggressive  tax  planning  practices  which  are  carried  out  through 
transfer  pricing  arrangements.  The  Commission,  and  in  particular  DG  COMP,  has  carried  out 
numerous assessments as to whether such arrangements may constitute illegal state aid. However, 
without an EU approach to transfer pricing, such arrangements can rarely be effectively addressed 
by state aid rules. This creates an inconsistency with the Commission priority to create an economy 
that works for people.  

8.  PREFERRED OPTION 

Chapter 5 outlined the available options, including discarded options, Chapter 6 presented selected 
combinations  of  options  in  three  distinct  Versions  and  assessed  the  impact  of  each.  Chapter  7 
compared  these  Versions  against  the  objectives  (from  Chapter  4)  on  the  basis  of  effectiveness, 
efficiency  and  coherence.  On  the  basis  of  the  assessment  conducted,  the  preferred  Version  is  the 
Composite  version  with  features  of  mandatory  harmonisation  including  a  transition  allocation 
rule. Each of the preferred options, which feature in Composite, are analysed below. 

8.1.  A  common  set  of  rules  for  the  corporate  income  tax  base  of  companies  within 

large groups (BEFIT) 

All  the  options  considered  for  the  purposes  of  BEFIT  were  based  on  the  creation  of  a  group 
taxation system. The mandate for this project in the Communication on Business Taxation for the 
21st Century required the development of a tax system that builds on the existing international tax 
framework, in particular the OECD/G20 Inclusive Framework Two Pillar Approach. Therefore, the 
preferred policy option for this component can co-exist with existing Member State corporate tax 
systems  and  be  compatible  with  the  two  Pillars.  The  overall  structure  of  BEFIT  in  five  building 
blocks  was  taken  as  a  given  starting  point  from  the  outset  of  the  project  and  this  is  why  the 
existence of the building blocks a prerequisite and never questioned. The  analysis below is  about 
the options under each of the five building blocks. 

58 

 
 
 
8.1.1.  Scope: Hybrid option 

BEFIT will have a hybrid scope (option 3). This means that the system will be mandatory only for 
groups  that  prepare  consolidated  financial  accounting  statements  and  earn  annual  combined 
revenues exceeding EUR 750 million. The system will be optional for smaller groups of companies 
but it will always be a condition of eligibility that they prepare consolidated financial accounting 
statements. This threshold will be in alignment with the GloBE Rules under Pillar 2, which ensures 
a consistent approach that complements this internationally agreed framework on a minimum level 
of taxation. 

The hybrid scope therefore strikes the best  balance between achieving the objective of simplicity 
for  large  groups  of  companies  without  forcing  a  greater  administrative  burden  on  smaller-sized 
groups. Accordingly, it ensures tax certainty for larger groups, which generally have greater cross-
border  exposure,  and  optionality  for  smaller  groups.  It  creates  the  best  mix  of  the  optional  and 
mandatory scope for groups, which leads to a business environment that can stimulate growth and 
investment in the internal market.  

8.1.2.  Tax base calculation: Limited tax adjustments to the financial accounts 

Option 1 for a simplified tax base complies in the best way the objective to simplify tax rules and 
stimulate  growth  and  investment.  The  calculation  of  the  tax  base  will  be  the  result  of  applying  a 
limited  series  of  tax  adjustments  to  the  financial  accounting  statements  of  each  BEFIT  group 
member, as prepared to reconcile with the consolidated statements of the group. Additionally, the 
framework follows closely  the approach in  Pillar 2, which should imply  that Member States will 
have familiarity  with  the rules.  To provide space for growth and investment,  Member States will 
also  be  allowed  to  individually  apply  additional  adjustments  to  their  allocated  part  in  areas  not 
covered  by  the  common  rules  (e.g.,  certain  tax  incentives).  The  alternative  option,  which  would 
resonate the CCCTB, would contribute to simplicity but to a lesser extent, as it would replace 27 
tax  systems  but  set  up  a  detailed  framework  which  would  be  entirely  different  from  accounting 
rules.  

8.1.3.  Allocation  of  the  aggregated  tax  base:  Transition  rule  for  allocating  the 

aggregated tax base 

Option 3 is the preferred choice. This will be a tax base allocation referring to  the average of the 
taxable  results  of  each  BEFIT  group  member  over  previous  fiscal  years,  for  instance  three  fiscal 
years  (rolling  baseline  percentage).  This  option  would  allow  for  the  possibility  of  introducing  an 
allocation formula based on substantive factors at a later stage.  

The preferred option is a compromise which immediately addresses the existing challenges in the 
internal market through a simple system while accommodating the general views of stakeholders in 
the public consultation with regard to the challenges of introducing a new comprehensive corporate 
tax system at the same time as Member States are in the process of implementing the OECD Pillars 
1 and 2.  

A  review  mechanism  would  ensure  that  the  effects  of  the  rolling  tax  base  allocation  will  be 
monitored and analysed. Together with new CbCR data and studies of the impact of Pillars 1 and 2, 
these data will inform on the prospect for introducing a profit allocation rule that could be based on 
a formula. The aim would be to arrive at a permanent allocation rule that would better reflect the 

59 

 
 
modern economic reality and the tax environment after the OECD Pillars 1 and 2 have come into 
effect.  A  dynamic  approach  would,  to  the  greatest  extend  possible,  contribute  to  the  objective  of 
stimulating growth. 

8.1.4.  Transactions  with  associated enterprises outside  the BEFIT group: Simplified 

approach to transfer pricing risk assessment 

Option  2  is  the  preferred  one  for  this  building  block.  It  aims  to  introduce  simplification  in  the 
method for assessing the risk of transfer prices between BEFIT group members and their associated 
enterprises. The options were to keep the existing framework or introduce a risk assessment tool for 
transfer pricing arrangements. Considering that simplification is an overarching issue in BEFIT, the 
introduction of a transparent  and harmonised framework for risk assessment  using profit markers 
should  lower  compliance  costs  for  EU  businesses  and  improve  efficiency  in  the  use  of  resources 
within businesses and tax administrations. On this basis, BEFIT will propose the introduction of a 
‘traffic  light  system’  under  which,  each  transaction  will  have  to  be  assessed  as  being  of  low, 
medium or high risk, depending on how it compares to a series of pre-set benchmarks. This system 
will allow  predictability of tax administrations and in  this way, provide an incentive to  taxpayers 
for  further  engagement.  Accordingly,  an  increase  in  commercial  activity  will  open  the  way  for 
growth and, accordingly, higher tax revenues. 

8.1.5.  Administration system: Hybrid One-Stop-Shop 

The preferred option is the Hybrid OSS. This option combines the Advanced OSS and the Limited 
OSS.  It  means  that  the  BEFIT  Information  Return  would  be  dealt  with  centrally  via  the  Filing 
Authority whereas the individual tax returns would be filed by each BEFIT group member with its 
local  tax  authority.  The  local  tax  authorities  would  also  remain  responsible  for  the  BEFIT  group 
members’  settling  of  tax  liabilities,  as  well  as  audits  and  dispute  settlement  in  conformity  with 
national tax sovereignty. When it comes to elements of the administration of BEFIT, which touch 
upon national tax sovereignty, in particular audits and dispute resolution, it is unavoidable that local 
tax  authorities  have  to  maintain  most  part  of  their  current  role  and  therefore  the  limited  OSS 
applies.  

This  option  prioritises  simplicity  and  the  avoidance  of  increased  administrative  burden  for  tax 
administrations and creates the best possible balance between the simplicity of an OSS and the role 
played  by  Member  States’  national  authorities.  The  BEFIT  Teams  will  play  an  important  role  in 
this  balance.  They  will  aim  to  reach  early  agreement  on  several  items  of  the  BEFIT  Information 
Return and provide tax certainty, which should decrease compliance costs, at least gradually, and 
foster the internal market as an environment of growth and investment. 

8.2.  Common approach to transfer pricing 

The  preferred  option  is  to  include  the  OECD  arm’s  length  principle  and  Transfer  Pricing 
Guidelines in EU law alongside the gradual development of common approaches to the practice of 
applying  transfer  pricing.  This  option  will  ensure  a  coordinated  interpretation  and  application  of 
the  arm’s  length  principle  within  the  EU.  It  will  provide  tax  certainty  for  taxpayers,  and  tax 
administrations will have to deal with less disputes. Furthermore, making this a binding approach, 
and  in  combination  with  anti-abuse  provisions,  it  should  bring  down  the  opportunities  for 
companies  to  use  transfer  pricing  for  aggressive  tax  planning  purposes.  Option  2  will  deliver  the 
best  on  all  pursued  objectives.  It  will  ensure  greater  simplicity  by  encouraging  a  common 

60 

 
 
interpretation  and  application  of  the  arm’s  length  principle  and  the  OECD  Transfer  Pricing 
Guidelines. In addition, it will stimulate growth and investment through ensuring that the EU can 
react quickly and coordinate on the interpretation and application of the guidance.  

8.3.  REFIT (simplification and improved efficiency) 

All groups in the mandatory scope of BEFIT and all groups that file consolidated financial accounts 
and  opt  into  BEFIT  will  benefit  from  tax  simplification  by  applying  a  single  set  of  tax  rules  to 
calculate their tax base across the internal market.  

This  simplification  will  reduce  tax  compliance  costs  (e.g.,  administrative,  legal  and  time  costs), 
because  BEFIT  groups  will  no  longer  be  required  to  prepare  and  compute  their  taxable  results 
according to  complex sets  of national  tax rules but,  rather, be  able to  file a  centralised  tax return 
(one-stop-shop) and will benefit from early, EU-wide tax certainty on some items of the tax base, 
thanks  to  the  closer  cooperation  within  the  BEFIT  Teams,  explained  above.  It  also  entails,  for 
example,  limited  additional  learning  costs  to  familiarise  with  the  common  corporate  tax  rules,  as 
the  rules  for  computing  the  tax  base  will  be  harmonised.  Finally,  by  allowing  this  system  to  be 
optional for smaller groups as long as they file consolidated financial statement, they will be given 
the opportunity to reach a business decision that suits best, namely after assessing the compliance 
costs and administrative complexity that can arise from dealing with distinct tax rules. 

8.4.  Application of the ‘one in, one out’ approach 

The  ‘one-in,  one-out’  approach  consists  of  offsetting  any  new  burden  for  citizens  and  businesses 
resulting  from  the  Commission’s  proposals  by  removing  an  equivalent  existing  burden  in  the  same 
policy  area.  As  noted  above,  the  preferred  option  has  the  potential  to  significantly  reduce  tax 
compliance costs for groups of companies. Estimated tax compliance cost savings could range from 
EUR 11 million to EUR 22 million if only MNEs with a turnover of EUR 750 million are in and 
EUR 42 million per year to EUR 80 million per year if smaller groups of companies also opt in. 
While  it  is  difficult  to  identify  the  precise  nature  of  such  costs  savings,  one  can  assume  that  the 
great  majority  are  related  to  administrative  activities/reporting  obligation  linked  to  national  tax 
rules, rather than adjustment costs. On the other hand, the additional costs for businesses that will 
apply the new rules are tentatively estimated between EUR 15 million to EUR 29 million one-off 
costs  to  businesses  and  around  EUR  297  million  one-off  costs  for  tax  administrations.  Recurrent 
costs would range from EUR 5 million to EUR 9 million per year for business groups. 

61 

 
 
 
 
 
 
 
9.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? 

Monitoring and evaluation are key constituents of this initiative, regardless of the policy options to 
be finally selected. Progress towards achieving the objectives of the initiative will be monitored and 
evaluated on the basis of the data already collected and possible new information.  

9.1.  Monitoring 

The  Commission  will  periodically  monitor  the  implementation  of  the  legal  proposals  and  their 
application  in  close  cooperation  with  the  Member  States.  Monitoring  in  a  continuous  and 
systematic way will allow the Commission to identify whether the policy proposal is being applied 
as expected and to address implementation problems in a timely manner. Collection of factual data 
on the suggested monitoring indicators will also provide the basis for the future evaluation of the 
initiative (see section 9.2).  

In  terms  of  objectives,  as  described  in  Chapter  4,  the  general  objectives  of  the  proposal  are  to 
simplify  tax  rules  for  businesses  in  the  EU  and  have  the  effect  of  stimulating  growth  and 
investment and ensuring sustainable tax revenues for Member States. The specific objectives that 
have  to  be  materialised  to  set  the  path  for  achieving  this  are  to:  (i)  reduce  compliance  costs,  (ii) 
encourage  cross-border  expansion,  (iii)  ensure  a  level  playing  field  and  reduce  distortions  in  the 
internal market, and (iv) reduce the risk of double and over-taxation.  

Below, indicators are suggested to measure the success of the initiative on both BEFIT and transfer 
pricing, in light of these objectives. The tools in Table 6 are targeted to specific objectives, which 
are more suited for measurement.  

•  A  positive  evolution  of  EU  GDP,  which  could  indicate  that  the  initiative  has  effectively 
reduced  distortions  in  the  internal  market  and  stimulated  growth  and  investment  in 
the EU;  

•  A decrease in the number of cases in which Member States had to shut down artificial tax 
schemes,  which  could  indicate  that  the  initiative  has  reduced  distortions  in  the  internal 
market and enhanced tax certainty and fairness.  

•  A decrease in the number of mutual agreement procedures (MAPs) between Member State 
tax administrations, which could indicate that the initiative has reduced the risk of double 
or over-taxation and disputes.  

•  A  positive  evolution  of  the  corporate  income  tax  base  of  Member  States,  which  could 
indicate that the initiative has contributed to  ensuring fair and sustainable tax revenues 
for Member States.   

•  An increase in the number of large groups that fall under the mandatory scope, which would 
reflect that groups in the EU have grown larger and increased their revenues, which could 
indicate  that  the  initiative  has  effectively  encouraged  cross-border  expansion  and 
stimulated growth and investment in the EU. 

•  An increase in the number of groups below the threshold for mandatory application which 
have opted in. This would indicate that the benefits, such as possibly reducing compliance 
costs and enhancing tax certainty, of the new system have been effective from a business 
perspective and contributed to stimulating growth and investment in the EU. 

62 

 
 
•  A  decrease  in  tax  compliance  costs  for  in-scope  groups,  relative  to  their  turnover,  which 
could  indicate  that  the  initiative  has  effectively  reduced  compliance  costs  for  EU 
businesses. 

•  An assessment of good functioning of the administrative framework and in particular, of the 
efficiency of the filing system through one tax authority as well as the effectiveness of the 
BEFIT  Teams  in  giving  early  legal  certainty  on  certain  items,  could  indicate  having 
achieved simplified tax rules, reduced compliance costs and/or enhanced tax certainty.  

•  A decrease in the number of transfer pricing disputes within the EU, which could indicate 
that  the  initiative  enhanced  tax  certainty  and  fairness.  This  indicator  would  measure 
whether  the  aggregation  of  the  BEFIT  tax  base  and  enhanced  tax  certainty  for  BEFIT 
groups through risk assessment criteria, as well as the common EU approach to a series of 
transfer pricing topics have effectively reduced the numbers of disputes. 

Table 6: Objectives, Monitoring Indicators and Measurement Tools 

Specific Objectives 

Indicators 

Measurement Tools 

for 

large 
Survey/questionnaire 
groups,  by  DG  TAXUD,  possibly 
with 
in 
cooperation  with  Member  State 
tax authorities 

assistance, 

external 

Data  received  by  DG  TAXUD 
from  Member 
tax 
authorities, which would have this 
information  available  as  ‘Filing 
Authorities’ 

State 

Data collected by DG TAXUD on 
new  MAPs  and  numbers  of  cases 
under  the  Arbitration  Convention 
and  Directive  on 
tax  dispute 
resolution mechanisms 

To  reduce  compliance  costs 
for EU businesses 

Implementation  and 
running  costs 
BEFIT, relative to turnover 

first  BEFIT 
for  groups  under 

Training costs for human resources in 
business and tax administrations  

Number  of  groups 
BEFIT 

that  opted  in 

Number  and  cost  of  double  taxation 
disputes  between  Member  States, 
which  feature  as  “new  entries”  (after 
BEFIT  started  to  apply)  in  MAP 
procedures and Arbitration 

63 

 
 
 
To  encourage  cross-border 
expansion 

Number  of  large  groups  that  fall 
under the mandatory scope of BEFIT 

Number  of  groups  opting  to  apply 
BEFIT 

To 
that 
reduce  distortions 
influence  business  decisions 
in  the  internal  market  and 
thereby level the playing field 
for EU businesses 

Number  of  cases  in  which  Member 
States  had  to  shut  down  artificial  tax 
schemes  

Evolution of EU GDP 

Survey on aggregated data by DG 
TAXUD  for  Member  State  tax 
authorities, which would have this 
information available  

Data  received  by  DG  TAXUD 
from  Member 
tax 
authorities, which would have this 
information  available  as  ‘Filing 
Authorities’ 

State 

Information to be provided by tax 
administrations  through  a  survey 
that  will  be  circulated  by  DG 
TAXUD  

accounts 
National 
statistics by Eurostat 

and  GDP 

To  reduce  the  risk  of  double 
or over-taxation and disputes 

Number  of  double  taxation  disputes 
between  Member  States,  which 
feature as “new entries” (after BEFIT 
started  to  apply)  in  MAP  procedures 
and Arbitration 

Data collected by TAXUD on new 
MAPs and numbers of cases under 
the  Arbitration  Convention  and 
Directive on tax dispute resolution 
mechanisms 

As for the sources of information that will be used, the official Balance-of-Payment statistics take 
stock of the Foreign Direct Investment (FDI) flows and income streams thereof. From the macro-
economic  perspective,  this  will  also  be  a  crucial  publicly  available  indicator.  Regarding  tax 
revenues  and  other  administrative  information,  considering  that  the  Commission  is  not  a  tax 
authority, it does not possess primary sources of information. The main sources that TAXUD could 
make  use  of,  to  derive  useful  and  comprehensive  information  will  be  the  tax  administrations 
themselves, as they will be operating the initiative, and the taxpayers in scope of the rules. It will be 
important  that  Member  States  provide  useful  numerical  data,  including  data  that  they  will  have 
collected  from  taxpayers,  to  allow  TAXUD  to  come  to  conclusions  on  the  above  topics.  For  this 
purpose, the legal draft will lay down an obligation for Member States to report to the Commission 
all requisite aggregated information for a comprehensive assessment. 

In  order  to  measure  an  isolated  effect,  the  initiative  can  be  monitored  using  also  econometric 
techniques which typically rely on time series of macro-economic magnitudes where the impact of 
the shock can be controlled for. Provided there are no overlapping relevant legislative changes or 
shocks, it will be possible to assign an increase in foreign direct investment (FDI) to the initiative 
even  in  the  short  term,  by  comparison  with  a  model-based  reference  scenario  based  on  past 
statistical information.  

The Commission will review the situation in the Member States regularly and publish a report. The 
monitoring framework will be subject to further adjustments in accordance with the final legal and 
implementation requirements and timeline.  

64 

 
 
 
 
 
 
9.2.  Evaluation  

Considering the magnitude of the initiative and the fact that it will introduce several novel features 
in  corporate  taxation,  it  will  initially  be  necessary  to  give  Member  States  time  and  all  necessary 
assistance, in order to properly implement the EU rules. On this premise, it would be more effective 
to  have  the  first  evaluation  not  earlier  than  five  years  as  of  when  the  rules  start  to  apply.  After 
establishing  a  first  picture  at  that  point  in  time,  the  evaluation  of  the  initiative  should  assess  the 
extent to which the outlined objectives have been met. It will also analyse the extent to which the 
expected  simplifications  for  the  targeted  stakeholders  have  materialised  and  assess  the  related 
administrative and regulatory burden. The Commission will inform about the evaluation results in 
the form of a Report. 

In  addition,  for  BEFIT,  it  is  foreseen  that  the  evaluation  will  include  a  review  of  the  transition 
allocation rule. The review will inter alia be based on information gathered on the application of 
BEFIT together with new CbCR data and an analysis of the impact of OECD Pillars 1 and 2. The 
aim of the review is to ensure that the allocation method reflect the modern economic reality and 
the  new  corporate  tax  environment  after  the  OECD  Pillars  1  and  2  have  come  into  effect.  If  the 
Commission deems it appropriate based on the review, it may adopt a legislative proposal to amend 
the allocation method, possibly by introducing a formula. 

65 

 
 
 
 
 
ANNEX 1: PROCEDURAL INFORMATION 

10.  LEAD DG, DECIDE PLANNING/CWP REFERENCES 

The lead Directorate General is the Directorate General for Taxation and the Customs Union (DG 
TAXUD).  

References:  
- Agenda Planning: Business in Europe: Framework for Income Taxation (PLAN/2022/663)  

-  Call  for  Evidence  for  an  Impact  Assessment:  Business  in  Europe:  Framework  for  Income 
Taxation (BEFIT) (Ref. Ares(2022)7086603) 
- The initiative was announced in  the Communication on Business Taxation for the 21st Century, 
COM(2021) 251 final. 

11.  ORGANISATION AND TIMING 

An  interservice  steering  group  was  set  up  to  steer  and  provide  input  to  this  impact  assessment 
report. The steering group, led by the Secretariat-General, met on: 2 September 2022, 18 November 
2022,  6  March  2023  and  11  April  2023.  The  following  Directorates  General  were  invited  to  the 
Inter-Service  Steering  Group  (ISSG):  AGRI,  BUDG,  CNECT,  COMM,  COMP,  ECFIN,  EEAS, 
EMPL, ESTAT, FISMA, GROW, INPTA, JRC, JUST, REGIO, SJ, OLAF, TRADE. In addition to 
the  meetings  of  the  Inter-Service  Steering  Group,  DG  TAXUD  met  in  bilateral  meetings  with 
representatives  of  the  following  Directorates  General  to  discuss  the  analysis  in  the  impact 
assessment,  the  design  of  options,  and  other  policy  issues:  COMP,  FISMA,  GROW,  JRC.  The 
report was submitted to the Regulatory Scrutiny Report on 26 April 2023. 

12.  CONSULTATION OF THE RSB 

The Impact Assessment report was scrutinised by the Regulatory Scrutiny Board and discussed in 
the relevant meeting on 24 May 2022. In the opinion dated 26 May 2023, the Regulatory Scrutiny 
Board outlined recommendations which were integrated in the impact assessment.  

It was found necessary that the initiatives assessed in the report that received the positive  opinion 
with reservation from the Regulatory Scrutiny Board will be presented as separate proposals. For 
this  reason,  this  impact  assessment  report  only  assesses  the  impact  of  the  proposal  for  a  Council 
Directive on BEFIT and the proposal for a Council Directive on Transfer Pricing.  

This represents faithfully the analysis on BEFIT and Transfer Pricing contained in the scrutinised 
impact  assessment  and  integrates  the  recommendations  of  the  Regulatory  Scrutiny  Board  in  that 
regard. The main changes to the document are summarised in Table A1. 

Table A1: TAXUD revisions following the RSB positive opinion with reservations 

Comments of the RSB 

How and where comments have been addressed 

(C) What to improve 

(1)  The  report  should  elaborate  on  the  We  have  further  clarified  the  lessons  learned 

66 

 
 
from 

learned 

lessons 
the  previous 
corporate  tax  initiatives.  It  should  better 
explain  how  the  initiative  fits  with  the 
OECD Pillar I and Pillar II work. It should 
also  summarise  the  main  features  of  the 
national tax frameworks. 

from  previous  corporate  tax  initiatives  in  the 
introduction (Chapter 1). This part now includes 
an  assessment  of  the  outcome  of  previous 
negotiations  and  how  this  has  been  reflected  in 
the proposal.  

report  now  also 

The 
includes  a  better 
explanation of links with Pillars 1 and 2. This 
is  addressed  in  the  introduction  (Chapter  1)  and 
the dedicated Annex 6 on the OECD Two Pillar 
Approach.  In  the  introduction,  this  is  done  in 
different  places:  (i)  how  the  use  of  financial 
accounting statements in Pillar 2 corresponds  to 
a  lesson  learned  from  the  2011  and  2016 
corporate  tax  proposals;  (ii)  to  illustrate,  among 
others,  that  the  context  for  tax  policy  has 
significantly  changed;  and  (iii)  on  which  design 
features BEFIT builds. In Annex 6, the parts on 
Pillar 1 and on Pillar 2 have both been extended. 
The  two  Pillars  are  also  addressed  in  the  new 
Section  2.4  that  was  added  to  explain  how  the 
problem will evolve with EU intervention.   

on 

income, 

deductible 

Section 2.2 ‘What  are the problem  drivers’ now 
summarises  the  main  features  of  the  national 
tax  frameworks.  In  particular,  it  explains  that 
all  systems  have  a  common  aim  and  include 
expenses, 
rules 
adjustments,  the  allocation  of  income  of  cross-
border  businesses,  and  common  features  to  deal 
with  mismatches/interactions 
the 
systems  (treaties, exchange of information,  anti-
abuse rules, disputes). This section has also been 
extended  with  elements  from  the  Commission’s 
most  recent  Annual  Report  on  Taxation  (ART) 
of  2023,  which 
includes  a  comprehensive 
overview  of  the  different  features  of  the  tax 
systems of the Member States.  

between 

It 

(2)  The  report  should  better  discuss  the 
robustness  of  the  Corporate  Income  Tax-
related  compliance  cost  estimates  under 
should  also  better 
the  baseline. 
substantiate,  with  further  evidence,  the 
description  of  the  consequences.  It  should 
clarify  the  causal  link  between  the  design 
of  a  particular  tax  system  and  business 
decisions  and  discuss 
the  available 
evidence  on  the  magnitude  of  double 

The robustness of the Corporate Income Tax-
related  compliance  cost  estimates  under  the 
baseline  are  set  out  in  greater  detail  in  Section 
6.3.1.1  and  Annex  4.  The  report  acknowledges 
limitations of the available data in this regard. It 
also  clarifies  that  the  10%  assumption  is  an 
illustrative  scenario  to  be  able  to  estimate  the 
effects,  in  absence  of  reliable  information  about 
cross-border  investment  behaviour  following  a 
reform of BEFIT’s nature and magnitude. Annex 

67 

 
 
taxation  and/or  over-taxation.  It  should 
explain  how  the  problem  will  evolve 
without  EU 
a 
consideration  of  relevant  ongoing  and 
existing legislation (including international 
policies).  

intervention,  with 

4  also  provides  more  explanation  for 
the 
assumptions  for  the  survey-based  projection  of 
compliance  cost  reduction  and  explains  the 
regression results (see Chart A4.1).  

from 
issues, 
categories  of 

The  description  of  the  consequences  has  been 
further substantiated.  In Sections 2.2 and 2.3 on 
problems and consequences, stakeholders’ views 
have  been  added  to  make  it  clearer  that,  in 
addition  to  Annex  2  and  the  published  factual 
summary of the public consultation, the input has 
been  duly  considered  and  that  it  confirmed 
the  perspective  of 
identified 
different 
stakeholders.  The 
description now also refers to additional sources, 
including  the  Commission’s  own  2023  Annual 
Report  on  Taxation  (ART)  and  a  study  by  the 
European  Parliament  ‘Overview  on  the  tax 
compliance  costs  faced  by  European  enterprises 
–  with  a  focus  on  SMEs’.  As  specifically 
mentioned  in  the  comments,  the  link  between 
the  design  of  a  particular  tax  system  and 
business  decisions  has  been  reformulated  to 
better  correspond  to  what  is  intended.  It  is 
elaborated  on  in  Section  2.3.3  and  now  also 
includes  additional  data,  from  the  ART,  and 
stakeholder input from a survey – both in support 
of  what  is  indeed  a  logical  explanation.  The 
available evidence on the magnitude of double 
taxation  and/or  over-taxation  is  discussed  in 
Section  2.3.4.  While  available  evidence 
is 
limited,  this  part  has  been  reviewed  to  make  it 
clearer that the number and costs of tax disputes 
are  a  form  of  evidence  of  the  importance  of 
double and over-taxation. In addition, the section 
has  been  elaborated  by  adding  limited  numbers 
and  studies.  For  over-taxation,  a  hypothetical 
example  was  added  to  illustrate  how  this  is 
relevant,  even  if  the  section  does  not  include 
numerical data. A new Section 2.4 was added to 
explain how the problem will evolve with EU 
intervention.  This  considers  relevant  ongoing 
and  existing 
international 
legislation  and 
policies.  Notably, 
it  discusses  relevant  EU 
directives  and  the  OECD/G20  IF  Two-Pillar 
Approach.  

In addition, the part on subsidiarity (in Chapter 

68 

 
 
3)  has  been  reviewed  to  clarify  that  better 
cooperation  between  tax  administrations  cannot 
solve the problems through bilateral agreements. 
This  part  has  also  been  expanded  for  transfer 
pricing.  In  Chapter  4,  the  objectives  have  been 
reviewed  to  include  fair  and  sustainable  tax 
revenues  as  a  general  objective,  rather  than  a 
specific  objective,  because  it  did  not  directly 
relate to an identified problem/consequence. The 
general  objective  to  ensure  a  level  playing  field 
has  been  moved  to  the  specific  objective  to 
reduce distortions in the internal market. The two 
are related. In Annex 3, a table has been added to 
briefly  explain  how  the  objectives  in  Chapter  4 
relate  to  the  Sustainable  Development  Goals 
(SDGs). Chapter 5 now includes explanation for 
the  exclusion  of  shipping  activities.  Chapter  5 
has also been updated to reflect the legal draft as 
much  as  possible  (e.g.,  BEFIT  ‘networks’  are 
now BEFIT ‘teams’). More generally, the whole 
document has been verified for consistency. The 
report  has  also  been  updated  in  Chapter  8  to 
reflect 
the 
administration  of  BEFIT  would  be  a  Hybrid 
One-Stop-Shop.   

the  preferred  option 

that 

for 

(3)  The  report  should  better  explain  the 
analysis  of  benefits.  It  should  clarify  the 
validity  of  the  cost  saving  estimates.  It 
should  better  explain  the  ‘simplified  tax 
regime’  variable  used  in  the  regression 
analysis  and  clarify  whether  this  is  a 
reasonable  representation  of  the  options 
proposed  in  this  initiative.  The  report 
should better discuss the likely uptake (and 
hence  aggregate  cost  saving  potential)  of 
the  option  packages  with  voluntary 
elements.  When 
the 
macroeconomic benefits, the report should 
explain 
the  assumptions  and  method 
behind  the  estimates.  It  should  strengthen, 
that 
with  further  evidence, 
international 
are  more 
companies 
productive  than  their  non-multinational 
counterparts. 

the  claim 

presenting 

Chapter  6,  as  well  as  Annex  4,  have  been 
updated  to  better  explain  the  analysis  of  the 
benefits.  The  assumptions  and  method  behind 
the  broader  macro-economic  estimates  are 
further  explained 
in  Annex  4.  The  annex 
provides additional explanation of the long-term 
simulations,  in  particular  Cortax.  This  includes 
the  assumptions  made,  which  is  also  why  it  is 
complemented by a series of sensitivity analyses: 
the  long-term  effects  on  GDP  and  tax  revenues 
are  set  out  for  different  hypotheses.  It  also 
discusses  the  country-by-country  reporting  data 
that  is  used  for  the  analysis.  Annex  4  also 
clarifies the validity of the cost saving estimates 
and  includes  an  explanation  of  the  ‘simplified 
tax  regime’  variable  in  Box  1.  It  provides 
literature/studies  as  evidence  on  the  point  that 
cross-border 
be  more 
businesses  would 
productive than businesses which do not expand 
across borders.  In  addition,  a Section 6.3.1.6 on 
for 
impacts  has  been 
additional 

added 

69 

 
 
(4)  The  report  should  quantify  the  costs 
introduced  by  this  initiative.  The  analysis 
should  build  on  relevant  examples  as  well 
as stakeholder views.  In line with this, the 
report  should  strengthen  the  presentation 
of the one in, one out approach and revise 
the  presentation  of  costs  and  benefits  in 
Annex 3.  

fundamental rights and competition.  

To  make  the  analysis  of  benefits  more  evident, 
we have also added a dedicated summary of the 
expected benefits of the  three assessed Versions 
in Section 6.3.3.  

as 

examples 

and  SAF-T 

Chapter  6  has  been  elaborated  to  include  a 
dedicated  sub-section  on  estimating  transition 
costs.  This  part  explains  why  it  is  difficult  to 
quantify  the  costs  and  it  considers  the  ViDA 
proposal 
for 
comparison.  The  same  chapter  provides  a  more 
tax 
detailed  explanation  of 
administrations  for  filing  and  for  the  BEFIT 
Teams. We have also revised Annex 3 to include 
costs  estimates  and  to  address  the  comments  as 
best as possible. However, the report also affirms 
that  it  is  difficult  to  estimate  as  BEFIT  has  no 
precedent.  The  report  and  the  corresponding 
Annex 2 also provide further details on the views 
received from different stakeholder groups.  

the  costs  of 

(5)  The  report  should  better  present  and 
discuss  the  distributional  impacts  of  the 
initiative.  It  should  provide  the  estimates 
of the GDP and tax revenue % increases in 
absolute (EUR) terms. 

(6)  The  report  should  present  a  consistent 
description of the monitoring arrangements 
with  indicators  that  more  clearly  outline 
what  success  would  look  like  for  this 
initiative.  

A  discussion  of  the  estimated  distributional 
impacts of the initiative is difficult in the current 
circumstances with the available CbCR data and 
while  the  implementation  of  Pillars  1  and  2  is 
pending.  The  proposal  therefore  only  includes  a 
transition  allocation  rule  which  refers  to  the 
average  of  the  tax  results  of  the  previous  three 
fiscal years, with the purpose of ensuring that the 
the  BEFIT  framework  can  be 
impacts  of 
assessed  more  accurately  once  the  effects  of 
implementing Pillars 1 and 2 materialise.  

Chapter 9 has been revisited in order to provide 
a  consistent  description  and  to  factor  in  more 
targeted  monitoring  for  the  initiative.  It  now 
includes  more  indicators  and  the  description  of 
the  tools  that  will  be  used  for  measurement  are 
more  detailed.  We  also  clarified  where  the 
information  could  be  gathered,  and 
that 
evaluation  would  require  cooperation  from  the 
Member States. As indicated, this has also  been 
added in the legal draft.  

70 

 
 
 
13.  EVIDENCE, SOURCES AND QUALITY 

The evidence base for this impact assessment report is based on various different sources: 

•  Modelling  by  the  European  Commission’s  Joint  Research  Centre  based  the  CORTAX 

model. 

•  Feedback  on  the  open  public  consultation  and  call  for  evidence,  as  summarised  in  the 

synopsis report in Annex 2. 

•  Exchanges with additional stakeholders through the Platform for Tax Good Governance and 

with Member States in Commission Working Party IV 

•  Further exchanges with additional stakeholders (i.e., MNEs) on an ad-hoc basis. 
•  Desk research and quantitative analysis. 

71 

 
 
 
 
ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT) 

1.  The stakeholders’ Engagement Strategy 

The consultation strategy for the present initiative encompasses the following activities:    

–  Feedback to the Call for Evidence published on the Commission website on 13 October 202269. 
–  Public consultation from 13 October 2022 to 26 January 2023. 
–  Targeted consultation to key stakeholders. 

The  main  objectives  of  the  different  consultation  streams  are  to  (i)  provide  stakeholders  and  the 
wider public with the opportunity to express their views on relevant elements, (ii) gather specialised 
input to support the analysis of the impact of the initiative and the risks it may entail, (iii) contribute 
to design the technical aspects of the future initiative, and (iv) to satisfy transparency principles and 
help to define priorities for the future initiative. 

2.  Feedback on the Call for Evidence 

The consultation period through this feedback mechanism took place between 13 October 2022 and 
26  January  2023  via  the  Commission  website70.  46  contributions  were  submitted  during  this 
consultation period by the following categories of stakeholders:  

Overall,  stakeholders  supported  the  objectives  of  the  initiative  and  confirmed  existing  challenges 
for the internal market. It was recognised that businesses face complexity and high cost in order to 
comply with the rules of 27 different national corporate tax systems. In principle, feedback showed 
that  a  common  corporate  tax  system  can  help  achieve  the  envisaged  policy  objectives  of  the 
initiative.  However,  respondents  also  expressed  diverging  views  on  the  proposed  policy  options. 
Some  of  the  respondents  acknowledged  that  a  common  corporate  tax  system  together  with  a 

 https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13463-Business-in-Europe-Framework-

 https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13463-Business-in-Europe-Framework-

69 
for-Income-Taxation-BEFIT-_en 
70 
for-Income-Taxation-BEFIT-_en 

72 

 
 
 
 
formulary  apportionment  of  the  aggregated  tax  base  to  eligible  Member  States  could  be  an 
important  step  towards  fairer  taxation.  Others  underlined  that  a  global  approach  would  be  more 
favourable. Regarding the timeframe, respondents, especially businesses and business associations, 
raised concerns due to the implementation of the global OECD Two-Pillar Approach which will be 
burdensome  for  businesses  in  the  coming  years.  On  this  basis,  the  respondents  stressed  that  this 
implementation  should  be  completed  and  assessed  before  introducing  another  set  of  multilateral 
corporate tax rules. 

Regarding the scope of BEFIT, several respondents suggested that the BEFIT proposal should have 
a broad scope. Most of them preferred the rules to be optional for all companies, including SMEs. 
One  stakeholder  also  underlined  that  this  integration  of  SMEs  should  apply  regardless  of  cross-
border activities and also be applicable to partnerships. 

Regarding  the  formulary  apportionment,  17  respondents  (37%)  were  in  favour  of  including 
intangible assets in the formula, while four respondents were against it. The remaining respondents 
did  not  have a  clear opinion  on intangible assets  as they presented a two-sided view. On the one 
hand, these respondents argued that intangible assets are the main value driver of most MNEs and 
should,  therefore,  be  included  to  reflect  economic  reality.  On  the  other  hand,  they  argued  that 
intangible  assets  should  be  excluded  in  order  to  prevent  tax  avoidance.  Several  respondents  also 
underlined  that  due  to  differences  in  business  activities  there  should  also  be  sector  specific 
formulae.  

Concerning  the  administration  of  BEFIT,  both  business  associations  and  businesses  strongly 
supported the proposed “One-Stop Shop”. They also stressed the importance of tax certainty and a 
tax disputes mechanism.  

In  general,  business  associations  welcomed  an  initiative  that  could  reduce  administrative  burden 
and  compliance  costs  and,  additionally,  strengthen  competitiveness  within  the  EU.  Some 
stakeholders,  however,  raised  concerns  as  to  whether  BEFIT  would  be  the  right  proposal  to 
achieving the envisaged objectives. In their concerns, business associations questioned whether the 
proposed  BEFIT  approach,  ultimately,  would  be  able  to  reduce  the  administrative  burden.  They 
underlined that BEFIT would introduce a new Corporate Income Tax system within the EU which 
would  operate  alongside  the  existing  systems  in  Member  States.  They  emphasised  the  need  for 
ensuring  compatibility  of  BEFIT  with  international  tax  standards  and  tax  treaties  as  the  Arm’s 
Length  Principle  would  still  be  applicable  to  transactions  with  entities  located  in  non-EU-
jurisdictions. In this regard, concerns were also raised as to whether BEFIT could end up increasing 
administrative costs, rather than reducing them.  

3.  Public Consultation 

The public consultation was launched on 13 October 2022. It remained open until 26 January 2023 
for a total of 12 weeks. The consultation questionnaire was first published in English. Two weeks 
later it was published in the other 22 official EU languages. 

The  questionnaire  consisted  of  18  questions  which  cover  the  main  impact  assessment  elements, 
including  the  problem  definition,  envisaged  objectives,  and  the  various  policy  options  for  the 
design  of the features of BEFIT. Views were, in particular, requested on:  (i) The scope of a new 
corporate tax framework; (ii) The calculation of a common tax base; (iii) the aggregation of the tax 
bases of members of the BEFIT group and the allocation of this aggregated tax base across Member 

73 

 
 
States; (iv) The application of transfer pricing rules to transactions with parties outside the BEFIT 
group; (v) Administrative simplifications.  

Stakeholders also had the opportunity to upload additional contributions.  

In total, 77 responses were received. The majority of the respondents (Almost 73%) were business 
associations and businesses. 

Survey Respondents by Category

1 1 1

4

2

Business Association
Company/business
EU Citizen
Other
Academic/Research Institution
NGO (Non-governmental organisation)
Public authority
Trade Union

12

36

Chart 2 - Overview of stakeholders providing feedback to the public consultation 

20

The  respondents  that  represented  businesses,  business  associations,  organisations  etc.  differed  in 
size. Out of these, 10 were micro (1 to 9 employees), 13 were small (10 to 49 employees), 16 were 
medium (50 to 249 employees), and 26 were large (more than 250 employees). 

The respondents  also  had numerous countries  of origin,  in particular Member States. The highest 
number of replies came from Germany (22), followed by respondents that could not be traced back 
to one single Member State (“EU wide”)(12), France (9), Italy (7), Netherlands (5), and Austria (3). 

22

9

7

5

12

3

1

1

1

1

2

2

1

1

1

1

1

1

2

2

1

25

20

15

10

5

0

Chart 3 - Country of origin of stakeholders providing feedback to the public consultation 

74 

 
 
 
 
In  addition  to,  or  instead  of,  replies  to  the  standardised  questionnaire,  30  position  papers  were 
submitted  by  stakeholders,  mainly  representing  research  institutions  and  business  associations. 
Seven respondents provided identical, or quasi-identical, replies. This analysis considered all such 
answers. However, one stakeholder submitted two replies to the public consultation. Since this does 
not  comply with  the rules for feedback,  one of the two answers was disregarded, while the other 
was considered for the purposes of this analysis. 

All respondents did, in general, acknowledge the idea of introducing a proposal that would remove 
obstacles related to corporate income taxation and distortions in the internal market. However, most 
of the respondents had various concerns about the timing due to the implementation of GloBE rules 
under  Pillar  2  that  effectively  enter  into  force  on  1  January  2024.  While  some  respondents, 
particularly business associations, pointed out that the scope should be aligned with Pillar 2, others 
only expressed interest in a fully optional BEFIT system. For a new common set of corporate tax 
rules,  the  majority  of  the  respondents  would  prefer  to  use  financial  accounting  statements  as  a 
starting  point  for  computing  the  tax  base  followed  by  a  limited  series  of  tax  adjustments.  Some 
respondents  had  concerns  about  the  formula  for  the  apportionment  of  the  tax  base,  while  many 
others stressed the importance of including intangible assets in the formula. Especially businesses 
did  not  seem  to  support  the  idea  of  neutralising  intra-group  transactions  within  the  BEFIT  group 
through  the  aggregation  of  tax  bases,  when  current  transfer  pricing  rules  (following  the  arm’s 
length  principle)  would  remain  applicable  to  transactions  with  related  parties  outside  the  BEFIT 
group. As  a dual system  could  create additional  administrative costs, the majority of  respondents 
would  prefer  to  keep  status  quo  for  transfer  pricing.  This  said,  a  majority  would  agree  to  the 
potential benefits of streamlining the tax authorities’ transfer pricing risk assessment. To reduce the 
administrative  burden,  most  respondents  strongly  supported  filing  simplifications,  e.g.,  through  a 
“One-Stop-Shop”. 

3.1 Views on Problem Definition 

50 respondents (65%) agreed, or partly agreed, that the current situation with 27 different national 
corporate tax systems in the Member States gives rise to problems in the internal market. Less than 
10 % (partly) disagreed. Furthermore, 39 respondents (51%) agreed, at least to a great extent, that 
high compliance costs constitute one of the problems.   

Problem Definition

Risk of erosion of EU countries’ tax bases due to 
aggressive tax planning

17

6

6

13

6

3

4

22

High tax compliance costs

22

17

5

13

3
0
0

17

Competitive disadvantage for EU businesses, compared
to businesses operating in large markets outside the EU

7

17

9

13

9

2

2

18

To a very great extent

To a great extent

Neutral

To some extent

To a very limited extent Not at all

Do not know

Blank

Chart 4 - Problem Definition, what do you think are the problems? 

75 

 
 
3.2 Views on Objectives for a new EU corporate tax framework 

Respondents  found  the  three  most  important  objectives  of  BEFIT  to  be  stimulating  growth  of 
business  activity  in  Europe  (26),  ensuring  greater  legal  certainty  (22),  and  reducing  compliance 
costs  for  businesses  (14).  The  reduction  of  administrative  costs  for  national  tax  authorities  and 
raising more tax revenues were considered as the least important objectives by the respondents. 

3.3 Views on Main Features of BEFIT 

To inquire about the most effective scope of application for BEFIT, several questions were asked in 
this  regard.  41  respondents  (53%)  considered  a  threshold  for  mandatory  application  with  a 
possibility to opt in for others to be (very) effective. A threshold without a possibility to opt in, i.e., 
mandatory for, and applicable to, only certain groups of companies, was not considered effective. 
23 respondents (30%) considered that a mandatory application without a threshold, i.e., mandatory 

Scope (1)

A threshold for compulsory application with a possibility
for groups/companies (including SMEs) below the
threshold to opt in

22

19

13

5

4

14

A threshold for compulsory application without a
possibility for groups below the threshold to opt in

2

13

28

12

7

15

A compulsory system without a threshold

13

10

9

25

7

13

Very effective

Effective

Not very effective

Not effective at all

Do not know

Blank

Chart 5 - Answers on the Scope of BEFIT (1) 

for all groups of companies, would be (very) effective. 

Concerning the potential threshold, nearly 1/3 considered that BEFIT would be very effective if a 
threshold were set at consolidated global revenues exceeding EUR 750 million.  

In contrast, less than 10% considered a threshold below EUR 750 million, but exceeding EUR 50 
million,  in  consolidated  global  revenues  to  be  very  effective.  The  respondents  considered  that 
BEFIT would be very effective either: (i) if the threshold is above EUR 750 million, or (ii) if it is 
mandatory for all groups of companies.  

Concerning  the  possibility  of  excluding  some  businesses  from  the  scope  of  application  due  to 
certain  sector-specific  activities,  nearly  50%  disagreed  or  partly  disagreed  with  such  a  prospect. 

Scope (2)

 Standalone companies, regardless of their revenues

9

8

7

23

18

All groups, regardless of their revenues (including SMEs)

14

8

6

 Groups with over EUR 50 million of consolidated global…

5

8

15

Groups with over EUR 250 million of consolidated global…

76 
4

12

15

29

25

21

7

12

13

12

13

12

12

Groups with over EUR 750 million of consolidated global…

22

23

9

4

9

10

Very effective

Effective

Not very effective

Not effective at all

Do not know

Blank

Chart 6 - Answers on the Scope of BEFIT (2) 

 
 
Approximately 20% expressed (at least partly) support for such an approach. 

Another  main  feature  of  BEFIT  is  the  calculation  of  an  aggregated  tax  base.  In  this  regard,  45 
respondents  (58%)  considered  that  using  the  financial  accounting  statements  as  a  starting  point 
followed  by  certain  tax  adjustments  for  arriving  at  the  BEFIT  tax  base  (same  principles  as  in 
GloBE rules under Pillar 2) could be (very) effective. 42 respondents (55%) would be in favour of 
restricting the required tax adjustments to a minimum, i.e., they (at least partly) agree. 

With regard to  the actual  required tax adjustments,  respondents  had different  views on which tax 
adjustments to the financial accounts should be the key. According to the replies, adjustments that 
(i) give tax credits for tax already due on income outside the EU, and (ii) take into account interest, 
royalties and other income paid to a company within the scope of BEFIT were considered to be the 
most  important.  Adjustments  in  relation  to  entering  and  leaving  BEFIT  (corporate  restructuring 
and transition phase) were seemingly the least important. 

In relation to the prospect for cross-border loss relief, respondents had a strong joint view. Whereas 
only 3% (out of 64 respondents who replied to the question) disagreed, a strong majority of more 
than 2/3 were in favour. Taking into account those respondents who also partly agreed, almost 90% 
supported cross-border loss relief.  

The aggregated tax base will be allocated using a formula to the Member States in which a group 
operates. As to whether the tax base should be apportioned to the eligible Member States using a 
formula, respondents also had a strong view. Whereas 18 respondents disagreed or partly disagreed 
with such an approach, more than 50% (42 of 77) thereof agreed or partly agreed. Without taking 
into account those who did not answer or had no answer, a strong majority of 2/3 (42 of 62) was in 
favour of this approach. 

Considering how a formula for the apportionment of the aggregated tax base should be designed, 
the respondents had different opinions, particularly in regard to whether intangible assets should be 
taken  into  account.  In  fact,  their  answers  seemed  relative  to  the  different  respondent  categories 
which they belong to.  

Out  of  the  34  respondents  (44%)  who  supported  the  idea  of  including  intangible  assets  in  the 
formula, 31 came from the area of business associations or businesses. Those who were in favour 
of excluding intangible assets from the formula (almost 25%) were EU citizens or came from the 
academic  research  area.  Only  5,  corresponding  to  less  than  10%  of  the  respondents,  who  would 
agree to exclude intangible assets came from the field of business associations or businesses. 

On  the  weight  of  different  factors  in  the  formula,  a  fifth  part  of  the  respondents  (approximately 
20%) agreed or partly agreed with the approach of giving higher weighting to sales by destination. 
However,  the  opinions  were  widely  spread  as  almost  30%  disagreed  or  partly  disagreed  with  the 
idea of giving sales by destination more weight. 

On  questions  concerning  how  transactions  between  members  of  the  BEFIT  group  and  related 
parties outside the BEFIT group should be treated, the respondents had the clear view that the status 
quo  for  transfer  pricing  rules  should  be  maintained.  From  a  group  of  57  respondents  (excluding 
those who did not reply or did not know), a majority of 35 (60%) were in favour (agreed or partly 
agreed) of this approach, whilst almost 1/3 opposed (disagreed or partly disagreed). Regarding the 

77 

 
 
idea of using certain pre-fixed benchmarks for the allocation of profit to related parties outside the 
BEFIT group, the majority did not respond or had no opinion. 

In  relation  to  risk  assessments  performed  by  national  tax  authorities  in  transfer  pricing  cases 
concerning  transactions  between  members  of  the  BEFIT  group  and  related  parties  outside  the 
Group, 42 respondents (more than 50%) agreed or partly agreed to a possible streamlining across 
the  Member  States.  Only  9%  (partly)  disagreed.  On  this  approach,  almost  two  thirds  had  the 
opinion  that  a  possible  streamlining  should  be  applicable  to  both  inbound  and  outbound 
transactions. Only 2 respondents did not favour this approach (under 3%). 

Streamlining Risk Assessments in Transfer Princing

26

2

49

Yes

No

Blank

Chart 7 - Streamlining tax authorities transfer pricing risk assessment 

Finally,  respondents  had  a  clear  message  regarding  potential  simplifications  in  relation  to  the 
administration  of  BEFIT.  Out  of  60  respondents,  almost  two  thirds  (63%)  would  prioritise  filing 
simplifications over audit simplifications. The least favoured option for potential simplification and 
reduction of compliance costs was dispute resolution. It was favoured by only 20% but almost 50% 
ranked it as the least effective option which could provide for simplification. 

The results in this sub-section have to be considered with the caveat that a significant percentage of 
the  respondents  to  the  survey  did  not  provide  replies  directly  to  the  questionnaire  but  submitted 
own comments through position papers. 

4. Position Papers 

A total of 30 position papers were received. Out of these, 8 position papers were already included 
and evaluated in the Call for Evidence. Two of them were not linked to BEFIT. A synopsis of the 
relevant comments is grouped in 3 categories depending on the industry/sector of the respondent. 

4.1 Positions of Tax Advisers 

6 position papers came from respondents in the area of tax consultancy. From this category, most of 
the respondents argued that they are in favour of addressing the issues related to the existence of 27 
different  corporate  tax  systems  in  the  internal  market  and  establishing  a  common  corporate  tax 
framework  within  the  EU.  They  emphasised  that,  if  designed  accurately,  such  an  initiative  could 
boost the competitiveness of the internal market, reduce compliance costs, and support investment 
in the EU. 

78 

 
 
Aside  from  the  potential  benefits  of  a  common  corporate  tax  framework,  the  respondents  raised 
concerns  about  the  timing  as  introducing  new  rules  would  entail  a  risk  of  increasing  the 
administrative  burden.  Such  risk  is  not  desirable  when  businesses  are  currently  engaged  in 
implementing GloBE rules under Pillar 2. Nonetheless, all respondents of this category pointed out 
that  it  would  be  important  to  closely  align  BEFIT  and  Pillar  2  and  ensure  a  proper  interaction 
between  the  two  systems,  in  order  to  achieve  the  envisaged  policy  objectives,  particularly  the 
simplification prospect. 

The  majority  of  the  respondents  also  supported  the  idea  of  using  the  consolidated  financial 
accounting  statements  as  a  starting  point  for  the calculation  of  the  BEFIT  tax  base  as  this  would 
ensure cost efficiency and entail greater simplicity for businesses.     

Finally, all respondents of this category had a clear common view on the formulary apportionment. 
According  to  their  replies,  the  formula  (and  the  factors  it  will  be  built  on)  should  appropriately 
reflect the contribution to value creation. Profits should be attributed to the jurisdiction where the 
economic  activity  and  investment  take  place.  On  this  basis,  all  respondents  stressed  the  need  for 
including intangible assets as a factor in the formula. Several respondents even pointed out that the 
formula should distinguish between acquired and self-generated intangible assets. 

4.2 Positions of Business Associations 

13 position papers were received from respondents qualified as business associations. Respondents 
of this category argued that the current EU tax framework is inadequate for taxpayers. In addition, 
most of the respondents underlined that the removal of income tax obstacles in the internal market 
would  be  essential  to  enhance  growth  and  competitiveness  in  the  EU.  Removing  such  obstacles 
could  also  foster  innovation  and  support  the  creation  of  jobs.  All  of  them  saw  the  harmonisation 
and  streamlining  of  tax  rules  as  a  way  forward  to  facilitate  cross-border  trade  and  activities. 
Nonetheless,  some of the respondents  had strong doubts as to  whether BEFIT would be the right 
initiative to tackle the issues. 

Respondents recognised enhanced tax certainty as the most important objective of an initiative like 
BEFIT. All of them strongly supported that BEFIT should be aligned with existing multilateral tax 
agreements and other international initiatives, such as the GloBE rules under Pillar 2. Like in the 
position  papers  from  tax  advisors,  the  respondents  of  this  category  were  concerned  about  the 
potential risk that BEFIT increases the administrative burden, even if it would only be for a short 
period, due to businesses’ ongoing process of implementing Pillar 2.  

For the scope of BEFIT, the respondents supported the idea that BEFIT should be optional for all 
groups  of  companies,  including  both  MNEs  and  SMEs.  If,  however,  the  mandatory  application 
were to be subject to a threshold, the respondents stressed that the possibility for opting-in should 
be considered for the groups not reaching the threshold. 

Regarding  the  calculation  of  the  BEFIT  tax  base,  the  respondents  of  this  category  did  not 
demonstrate  a  joint  view.  Some  stressed  that  a  common  corporate  tax  base  should  be  based  on  a 
uniform accounting system, such as IFRS. Since this accounting system is already applied, it would 
lead to an effective cost relief for businesses. However, some respondents also underlined that the 
tax  base  calculation  should  be  aligned  with  the  GloBE  rules  under  Pillar  2  in  order  to  avoid  the 
need for complying with several sets of rules and calculations.  

79 

 
 
Respondents  pointed  out  that  the  formulary  apportionment  could  lead  to  a  substantial 
simplification.  In  order  to  achieve  a  fair  distribution  of  the  taxable  base  among  Member  States, 
intangible assets should be included as a factor in the formula as they represent a key value driver 
in  many  businesses.  Without  intangible  assets  the  composition  of  the  formula  would  not  reflect 
modern economy and the formula would already be considered “outdated”. 

Respondents also stressed the need for a reduction of compliance costs for businesses operating in 
the internal market. In particular, they underlined that BEFIT should remove unnecessary reporting 
requirements. Several respondents favoured the proposed “One-Stop-Shop” solution, which would 
allow groups in scope to settle all filing issues with only one tax authority. In their view, this would 
effectively reduce the administrative burden and limit tax disputes.   

Finally, the respondents found that the proposal was not clear regarding the coexistence of BEFIT 
and transfer pricing  rules. Although  some respondents  acknowledged that  BEFIT could  eliminate 
tax frictions resulting from transfer pricing disputes, others pointed out the importance of keeping 
the current transfer pricing principles. 

4.3 Positions of Academia 

One academic research organisation submitted a detailed position paper welcoming an EU initiative 
targeted  at  strengthening  the  competitiveness  of  EU  businesses  and  increasing  the  willingness  to 
invest  in  the  EU.  The  respondent  underlined  that  a  common  corporate  tax  framework  in  the  EU 
which is closely aligned with the OECD Pillar 1 and 2 projects represents a promising approach to 
tackle issues related to administrative burdens and tax certainty.  

In  order  to  achieve  the  main  objectives  of  BEFIT,  such  as  a  reduction  of  compliance  costs,  it  is 
argued that the proposal should have a wide scope and allow for SMEs to opt in. This would ensure 
a level playing field and, at the same time, not force SMEs to apply BEFIT rules. 

Regarding the formulary apportionment, the respondent underlined that the inclusion of intangible 
assets could lead to tax planning due to the high mobility of these assets. Consequently, intangible 
asset be excluded from the formula.  

This position paper pointed out, in line with the other respondents, that BEFIT could increase the 
administrative  burden,  at  least  in  the  transition  period  immediately  after  the  adoption  of  the 
initiative. On this basis, it was stressed that the proposal should carefully balance tax accuracy and 
administrative costs. 

5. Targeted Consultations 

Over  the  course  of  the  policy  development  process,  a  number  of  interviews  and  meetings  were 
carried out with different stakeholders, including businesses of different sizes operating in different 
sectors. The key take-aways from these discussions are compiled in separate meeting reports that 
can  be  found  in  Annex  2A.  Overall,  it  can  be  said  that  the  stakeholders  favour  the  objectives  of 
simplification, tax certainty, and tax competitiveness but their views on the design of the initiative 
vary relative to their size and activities. 

Many  stakeholders  were  from  bigger  groups  that  would  be  in  scope  of  BEFIT  irrespective  of 
whether  a  threshold  of  EUR  750  million  was  introduced.  The  stakeholders  did,  in  general,  see  a 
value  in  having  a  broad  scope  and  alignment  with  GloBE  rules  under  Pillar  2.  One  stakeholder 

80 

 
 
found that there could be competition between companies around the scope of the proposal, e.g., if 
a EUR 750 million turnover criteria is introduced, as groups may try to limit their turnover if they 
wish to avoid being in scope of BEFIT. Another stakeholder was in favour of introducing BEFIT 
rules with a narrow scope with the possibility of widening it over time. 

Some  financial  and  insurance  institutions  proposed  to  exclude  certain  business  sectors,  such  as 
banks and insurance companies, from the scope as these sectors operate on the basis of a peculiar 
business model and are already highly regulated by sector specific rules. 

Stakeholders which were members of bigger groups were, generally, in favour of a simple approach 
using a common accounting standard, such as IFRS, as a starting point for the calculation of the tax 
base. In the absence of one common standard, one member of a bigger group asked for guidance on 
how to reconcile the differences between accounting standards, such as US GAAP and IFRS, for 
both  taxpayers  and  tax  administrations  in  the  EU.  Many  stakeholders  informed  that  they  do  not 
currently have consolidated financial accounts at EU level and that this could create an additional 
administrative task. 

Most stakeholders did not wish for a fully harmonised tax base. Instead, they drew attention to then 
need  for  applying  a  number  of  limited  tax  adjustments,  though,  the  opinions  on  which  tax 
adjustments  are  needed  vary.  Some  of  the  adjustments  that  were  considered  important,  included 
depreciations,  cross-border loss relief, dividends,  amortisation. Stakeholders  also  seemed to  share 
the  view  that  Member  States  should  still  be  able  to  design  specific  aspects  of  their  apportioned 
share of the tax base. One question how revenue deriving from activities in third countries would be 
treated in the calculations. 

Some stakeholders from financial and insurance institutions stressed that if they were to be in the 
scope of BEFIT, an alternative sector specific formula should apply. One proposed that adjustments 
to the formula for financial services in the CCCTB proposal could be followed. 

On the allocation of the aggregated tax base, most stakeholders preferred a hybrid approach with a 
formula that includes intangible assets. Different  opinions were expressed on how to estimate the 
value of the intangible assets. Sales and labour were considered other important factors in a well-
functioning  formula.  As  to  the  effects  of  the  apportionment,  several  stakeholders  asked  for 
clarification  on  the  interaction  between  BEFIT  and  the  OCED’s  Pillar  1  and/or  2  projects.  One 
stakeholder  expressed  concerns  regarding  the  timing  of  BEFIT  and  these  cost-heavy  OECD 
projects, while other stakeholders expressed the need for a transition period. 

In  general,  not  many  views  were  exchanged  on  transfer  pricing  as  most  stakeholders  seemed  to 
favour a continuation of the current rules. While one stakeholder underlined the need for guidance 
on  how  to  use  the  arm’s  length  principle  in  the  EU,  others  were  in  favour  of  the  ‘traffic  light 
system’ in the risk assessment. 

All stakeholders favoured administrative simplifications and found a “One-Stop-Shop” to be crucial 
for  legal  certainty  and  reducing  compliance  costs.  Some  added  that  a  common  administration 
should have features that provide for filing one single tax return, sorting out disagreements with all 
EU tax administrations at an early stage, and a dispute resolution mechanism.  

81 

 
 
 
ANNEX 2A: TARGETED CONSULTATIONS – COMPILATION OF 
INTERVIEW REPORTS

82 

 
 
Key Takeaways from the BEFIT Building Blocks Interview 25.3.22 #1 

25.3.2022 

The  interview  opened  with  a  short  overview  from  the  company  about  their  business 
model and the tax considerations for them. They are a telecommunications company. 

On  the  tax  base  they  believe  that  simplicity  is  key  and  the  closer  we  can  align  to 
accounting standards the better. A One Stop Shop is  critical  for any proposal  and legal 
certainty  is  one  of  the  biggest  challenges  facing  companies.  They  were  involved  in 
providing stakeholder input on the CCCTB proposal in the past and are supportive of the 
BEFIT goals. Tax planning is not a major feature of their industry as it is difficult to shift 
the tax base. Important elements of a tax base would be capital allowances (depreciation), 
and rules  on rollover relief, and dividends  should be exempt.  IFRS should be the basis 
and adapted to the specifics.  

However MS should also be  able to  design  locally  specific aspects  of the tax base  and 
consideration should be  given to  accommodate national  rules. Local  tax should  also  be 
taken into consideration as a tax expense for reducing the corporate tax base.  

Regarding  the  methods  for  profit  allocation,  they  liked  the  second  option  –  the  hybrid 
option,  which  involves  using  pre-determined  benchmarks  for  remunerating  the  routine 
functions and a formula  for apportioning the residual. They noted that in their industry 
intangibles  are  often  kept  where  they  were  acquired,  as  business  expansion  happens 
through acquiring local telecoms. Withholding taxes, in particular when they are charged 
outside the EU on inbound payments, are also something that should be dealt with in a 
proposal. 

 
 
 
 
 
 
 
 
 
 
Key Takeaways from the BEFIT Building Blocks Interview 30.3.22 #2 

The  company  began  by  giving  a  general  overview  of  their  business,  they  are  a  large 
company in the retail sector. 

TAXUD gave the background to the project and structured the conversation around the 
four building blocks. 

I. Scope 
On scope they did not have much to add on this point as they will be in scope regardless 
of  the  option  chosen  due  to  their  large  turnover.  They  noted  that  there  could  be 
competition between companies around the scope of the proposal – for example if set at 
€750m  turnover  then  companies  may  try  to  limit  their  turnover  if  they  wish  to  avoid 
being in scope. 

II. Tax Base 
On the base they noted the general trend is to follow IFRS. They stated this is positive for 
large groups. They were not in favour of creating a harmonised EU tax base from scratch.  

The company thought the starting point should be to use the second sub option based on 
the financial accounts: To use the financial accounts of each EU tax resident entity within 
the group. This would be easiest and simplest way to proceed. A participation exemption 
or double tax relief adjustment will be needed.  

The  company  stressed  the  importance  of  using  a  common  standard  for  the  accounts 
otherwise we cannot compare different companies. Most companies use IFRS, apart from 
US where US GAAP is more common. Adjustments to the financial accounts should be 
limited  but  it  is  also  important  to  maintain  certain  tax  incentives  to  keep  the  EU 
competitive. They also noted that third country losses should be taken into account. 

III. Profit Allocation 
For  building  block  3  the  question  is  how  do  we  simplify  the  profit  allocation  rule? 
TAXUD explained the two different options – either a formula or a hybrid approach. 

The company preferred an option as close as possible to Pillar 1 – the hybrid approach. 
They  raised  the  questions:  what  is  the  rule  order  between  BEFIT  and  P1,  and  what 
happens if you distribute to countries outside the EU. TAXUD noted that the purpose of 
BEFIT  is  to  establish  a  new  tax  system  and  arrive  at  a  corporate  tax  liability,  but  P1 
comes on top of this. To be reflected how we can ensure P1 obligations are fulfilled for 
MNEs in scope. 

84 

 
 
 
 
 
 
 
 
 
 
 
IV. Administration 
As  regards  administration  the  company  expressed  preferences  for  a  One  Stop  Shop, 
Dispute  Resolution  provisions,  and  the  elimination  of  double  taxation  –  it  is  important 
that tax doesn’t need to be paid twice on the same income. 

Key Takeaways from the BEFIT Building Blocks Interview 07.4.22 #3  

This  is  a  company  that  operates  in  the  pharmaceutical  sector,  conducting  R&D, 
manufacturing and distribution activities.  

TAXUD gave the background to the project and structured the conversation around the 
four building blocks. 

I. Scope 
On scope the company did not have much to add on this point as they will be in scope 
regardless  of  the  option  chosen  due  to  their  large  turnover.  They  were  just  asking  for 
clarifications  on  the  computation  of  the  thresholds,  within  or  outside  EU.  They  had 
understood the 250 mil and 750 mil threshold as a cumulative conditions: 750 mil for the 
group to be in scope, and eventually 250 mil for the EU part of the activities.  

II. Tax Base 
On the tax base they noted that, as per now, their general trend is to follow local national 
GAAP and when they consolidate they follow IFRS (+ adjustments). At present they do 
not consolidate financial account at EU level and as a consequence either of the two sub-
options would be entail some work for them, but feasible. They do plan to move to IFRS 
in the future.  

Should  the  IFRS  be  among  the  accounting  principles  selected  for  BEFIT,  the 
accounting/tax  adjustments  to  be  ruled  shall  include  the  tax  amortisation  for  those 
intangibles – such as trademark and goodwill – for which IFRS prescribe impairment and 
no  annual  amortisation:  for  instance,  a  specific  tax  rule  in  this  respect,  allowing  tax 
amortisation,  had  to  be  enacted  by  Italy  (without  such  rule,  groups  like  this  company 
might  reconsider  adopting  IFRS  due  to,  among  other  reasons,  this  unfavourable 
mismatch if compared with local GAAP, where amortisation is allowed). They suggest to 
explore what if a PE does not file financial accounts according to national law.   

85 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
On  the  depreciation/  amortisation  side,  a  simpler,  standardised  time  horizon  of 
depreciation  of  assets  would  be  a  plus  (against  declining  balance  method  in  CCCTB). 
Cross-border  loss  relief  also  important  to  be  explored  under  BEFIT;  like  the  IT  rules, 
e.g., a % of the EU consolidated tax base. 

III. Profit Allocation 
For building block 3 the question is how we simplify the profit allocation rule. TAXUD 
explained the two different options – either a fully fledge formula or a hybrid approach. 

The company explored and raised several questions;  

Among the proposed options, they seem to prefer the hybrid approach. They noted that 
the value of intangibles are not visible (so a formula based on “labour and (fixed) assets” 
would  not  suit  their  activity).  They  are  sceptical  on  establishing  a  “fixed  margin 
remuneration”  for  routine  activity  and  they  would  rather  prefer  a  ‘traffic  light  system’, 
considering  that  the  possibility  to  vary  remuneration  within  pre-determined  ranges  can 
better  mirror  changes  in  the  group  P&L  structure  due  to  restructuring  or  refocusing 
activities  (e.g.,  new  competitive  forces,  new  portfolio  etc.);  they  mentioned  that  the 
possibility to agree in advance with tax administrations on the range of the remuneration 
or to rebut the presumption of a “fixed margin” would be key in any case;  

With regard the allocation of residual profit, they noted that considering only third-party 
costs  as  allocation  key  seems  too  narrow  and  that  also  related  party  cost  should  be 
considered  e.g.,  cost  contribution  arrangements  which  are  ultimately  beneficial  to  the 
entire group.  

IV. Administration 
As regards administration the company expressed preferences for a multilateral tool, risk 
reduction  tool,  to  cope  with  the  implications  arising  from  BEFIT,  which  would  put  all 
national tax administrations together (opt in/ opt-out). 

86 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Key Takeaways from the BEFIT Building Blocks Interview 07.4.22 #4 

The company began by giving a general overview of their business. They are a company 
that  operate  in  the  haut-de-gamme  manufacturing  sector.  They  are  in  favour  of 
simplification, tax certainty, but also tax competitiveness.  

TAXUD gave the background to the project and structured the conversation around the 
four building blocks. 

I. Scope 
On scope the company did not have much to add on this point as they will be in scope 
regardless of the option chosen due to their large turnover.  

II. Tax Base 
They have a preference for sub option i) – to use financial accounts of each EU entity (+ 
adjustments)  and  then  consolidate.  They  already  follow  IFRS,  but  they  do  not 
consolidate  the  EU  tax  base.  On  the  base  they  noted  they  already  follow  IFRS  (+ 
adjustments). Moreover, as they do not consolidate at EU level at present; their position 
is neutral; they would need to appoint one EU entity to consolidate, but that is feasible. 
They are in favour of IFRS with few adjustments.  

High interest  on the future scope for  competition  among  MS: What  is  the definition of 
profit in (should the tax base be determined at the level of EBIT or anything else): is the 
tax  rate  left  to  MS  to  decide?;  what  is  the  treatment  of  interest  deduction  (NID  when 
financing  through equity), will tax incentives still be available (e.g. patent  box income, 
R&D  costs  incentives,  tax  credits…).  TAXUD  explained  that  some  aspects  of  the  tax 
system  will  remain  within  the  prerogative  of  the  MS  (provided  all  other  rules  are 
respected, e.g. MET rate, patent boxes), and some of them still need to be explored and 
taken into account in light of future actions, such as DEBRA etc. On the other hand, we 
expect that MS in the negotiation phase will defend as much as possible their possibility 
to remain competitive in this area, and the tax incentives.  

III. Profit Allocation 
For  building  block  3  the  question  is  how  do  we  simplify  the  profit  allocation  rule. 
TAXUD explained the two different options – either a formula or a hybrid approach. 
The company seem to prefer the hybrid approach. They are not in favour of an approach 
that  would  allocate  too  much  profit  (give  a  premium)  to  “market  jurisdictions”;  In  any 
case, they stress that a common set of rules could be helpful but what is key is having a 
common administration of the rules with the possibility to have an early tax certainty in 
agreement with the EU tax administrations.  

87 

 
 
 
 
 
 
 
 
 
 
 
 
 
IV. Administration 
As regards administration the company expressed preferences for a One stop shop; one 
tax  return,  dispute  resolution  provisions  –  all  crucial  if  BEFIT  is  meant  to  reduce 
“compliance  costs”.  Multilateral  agreement,  risk  reduction  tool,  to  cope  with  the 
implications  arising  from  BEFIT,  which  would  put  all  national  tax  administrations 
together. 

88 

 
 
 
 
 
 
 
 
 
Key Takeaways from the BEFIT Building Blocks Interview 8.04.2022 #5 

The  company  began  by  giving  an  overview  of  their  business:  they  are  a  financial 
institution.  

TAXUD explained the goal of the proposal is to create a new tax system for the EU, the 
intention is not to look at rates as this is being dealt with by Pillar 2.  

This  company  are  the  first  financial  services  company  interviewed.  While  they 
considered that the second policy option involving a hybrid approach to profit allocation 
was the best, however they are of the view that the banking industry should be carved out 
either from the BEFIT proposal altogether or only from the formulary apportionment for 
allocating  profits.  They  noted  that  banking  is  a  highly  regulated  industry.  They  do  not 
believe that a formula is  an effective method to  allocate profit within a banking  group. 
They also noted that intangibles are not a feature of the banking industry and explained 
that  they  often  use  Cost  Sharing  Agreements  for  doing  their  transfer  pricing  across  the 
group. They  also  clarified that they provide banking  services  from  “bricks and mortar” 
offices around Europe and they are not a fintech company.   

89 

 
 
 
 
 
 
 
 
 
 
 
Key Takeaways BEFIT Interview 12.4.22 #6 

This  is  a  fashion  company.  The  company  understands  that  the  aim  of  this  proposal  is 
simplification.  From  their  point  of  view,  transfer  pricing  is  simple.  The  company 
indicated  they  would  like  a  follow  up  meeting  to  further  discuss  the  proposal.  They 
undertook to go into detail on the options paper and come back to COM. 

Tax Base 
As regards the tax base, not all companies in their group use IFRS. The company would 
like  to  see  an  simplification  of  the  tax  base.  They  believe  that  relying  on  financial 
statements  would  bring  simplicity.  COM  noted  that  all  companies  in  the  group  would 
have  to  file  on  the  basis  of  the  same  system.  The  company  noted  that  Pillar  2  and  the 
process to arrive at an effective tax rate will create a lot of complications in practice.  

Transfer Pricing 
As regards transfer pricing they have selected their TP approach in consultation with tax 
authorities.  They  did  not  have  an  initial  view  on  the  ‘traffic  light  system’.  As  regards 
benchmarks they noted that in the past they have preferred a worldwide approach.  

As  regards  country  by  country  reporting  they  noted  that  it  involved  a  huge  amount  of 
work for MNEs however they do not  receive feedback from  tax authorities and so it is 
difficult to know their views on the relevance of the information they provide.  

Administration 
On tax administration the company do not have a difficulty dealing with more than one 
tax  authority.  They  have  joined  the  OECD  International  Compliance  Assurance 
Programme and their relationship is very good with the tax authorities. Their tax strategy 
is based on maintaining good relations with the tax authority. 

90 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Key Takeaways from the BEFIT Building Blocks Interview 26.4.2022 #7 

This is a large multinational group involved in the design, construction, operation etc. of 
transport infrastructure 

Scope: On scope they believe that we should maintain consistency with other initiatives 
such  as  the  CCCTB  proposal,  Pillar  2  and  Country  by  Country  Reporting.  A  level 
playing  field  is  an  important  consideration  as  regards  the  scope.  In  the  construction 
industry, branches are needed as the entity should be present in the country. 

Tax  Base:  The  company  believe  that  we  should  stick  as  close  as  possible  to  financial 
accounts. They noted that there had been moves in this direction in the 1990s in Spain. 
The company use IFRS and they find that financial accounting rules are quite appropriate 
for dealing with their business due to the fact that construction normally takes more than 
one year. The company also thought it would be better to use the financial accounts of 
each EU tax resident entity within the group 

Profit  Allocation:  The  key  consideration  here  is  that  this  should  be  kept  as  simple  as 
possible.  It  is  natural  to  allocate  on  the  basis  of  sales.  Any  profit  allocation  formula 
should  take  into  account  how  to  treat  licenses  under  the  assets  factor  (such  as  for  toll 
roads), without creating a distortion.  

91 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Key Takeaways from the BEFIT Building Blocks Interview 27/04/2022 #8  

The  Interviewed  MNE  is  a  European  fashion  brand  and have  local  subsidiaries  in  7 
Member States and 25 third countries.  

They  mentioned  that  their  main  intercompany  transactions  are  covered  by  Advance 
Pricing Agreements  

On the scope of BEFIT, they agreed that the tax group should be a sub-set of the global 
group  and  encompass  only  the  EU  tax  resident  entities.  They  were  also  in  favour  of 
aligning the threshold for the captured groups with that of Pillar 2 (i.e., annual combined 
worldwide revenues of 750 million). 

On the determination of the tax base, they expressed the view that the use of IFRS as a 
starting  point  can  be  tricky  and  influence  the  tax  results.  In  this  regard,  they  gave  the 
example of leases. As every lease is treated as a financial lease under IFRS, the notional 
interest  is  not  reflected  in  EBIT  (earnings  before  interest  and  tax),  which  is  calculated 
through the Profit & Loss Account. In addition, in relation to the adjustment for taxation 
of items of the Balance Sheet which are entitled for an accounting entry of longer than a 
year,  there  are  discretionary  choices  which  one  can  agree  with  auditors  and  this  could 
leave room for circumvention. 

They informed that more than 60% of their revenues come from non-EU customers and 
wondered  how  this  would  impact  the  allocation  of  income  via  the  formulary 
apportionment.  In  addressing  intangible  assets  in  the  formula,  they  identified  the 
following assets as critical: the brand (marketing and promotional expenses), design and 
patents (high-quality and exclusive raw materials).  

92 

 
 
 
 
 
 
  
 
 
 
 
 
 
 
Key Takeaways from the BEFIT Building Blocks Interview 24/05/2022 #9 

The  interviewed  MNE  is  an  entertainment  company.  It  provides  B2C  services  and  is 
present in the EU with local subsidiaries in many Member States. 

They  expressed  positive  feedback  about  BEFIT  as  long  as  double  taxation  is  avoided. 
They  however  raised  concerns  about  the  system’s  potential  interaction  with  Pillar  2, 
which would require further elaboration.  

The discussion focused on the use of financial accounts as a starting point for computing 
the tax base and on transfer pricing. They also insisted on the need for maintaining tax 
incentives per sector; e.g., for production, job creation, that is if BEFIT is meant to tackle 
tax incentives that lack economic substance. 

As a group with their Ultimate Parent entity outside EU, they would need to identify and 
designate one jurisdiction in the EU for their tax filing under BEFIT and also determine 
which accounting standard the group would have to use as a starting point for computing 
the tax base in the EU. 
They  explained  that  due  to  the  distinct  features  of  the  various  financial  accounting 
standards, individual elements and  differences between the standards  are likely  to  have 
an  impact  on  the  outcome  of  the  tax  rules  that  will  be  used  for  adjusting  the  financial 
accounts.  On  this  point,  they  stressed  the  need  for  elaborating  Guidance  on  how  to 
reconcile  the  differences  between  US  GAAP  and  IFRS  for  both  taxpayers  and  tax 
administrations in the EU. The interviewed MNE pointed out to four main areas where 
there are significant differences between US GAAP and IFRS:  

• 

• 

Impairment losses: the IFRS allow tangible assets to be revalued  (except 
for  goodwill)  while  the  US  GAAP  prohibit  taking  impairment  into 
account.  
Intangible assets accounting / R&D costs for intangibles: under IFRS, the 
costs can be capitalised (and thus depreciated over time) while under the 
US GAAP, development costs are immediately expensed. 

•  Fixed  assets  -  Tangibles  –  value  for  depreciation  purposes:  under  IFRS, 
the  value  is  first  recorded  at  cost  and  can  be  revaluated  later  on  up  to 
market  value  while  under  US  GAAP,  the  property  is  valued  and 
depreciated at historical cost. 

•  Fair value measurement: under IFRS rules, fair market value is taken into 

account while this is not allowed under US GAAP.  

93 

 
 
 
 
 
 
 
 
 
 
 
 
 
On  the  formulary  apportionment,  they  were  reticent  about  using  the  costs  of  R&D, 
marketing and advertising as a proxy for the value of intangible assets, as they find that 
businesses can still choose where they incur such costs.  

Additionally, it was mentioned that if the aim is to go beyond the CCCTB, there will be a 
need  for  Guidance  on  how  to  use  the  arm’s  length  principle  (ALP)  in  the  EU. 
Specifically,  this  would  concern  the  question  of  whether  the  ALP  is  still  an  income 
allocation rule. On this point, it would also be necessary to look into the interaction with 
Pillar 2. 

For  transactions  with  related  parties  outside  the  BEFIT  group,  the  interviewed  MNE 
seemed  to  be  in  favour  of  the  ‘traffic  light  system’,  but  mentioned  that  such  a  system 
should  be  linked  to  cooperative  compliance  initiatives  (fast  track  -  low  risk  to  avoid 
auditing).  They  would  also  be  in  favour  of  developing  an  Amount  B-style  method  for 
income allocation in the EU. 

94 

 
 
 
 
 
 
 
 
 
 
 
Key Takeaways from the BEFIT Building Blocks Interview 31-05-2022 #10  

This is a financial institution with a large insurance business. 

•  Scope : 

The  company  raised  the  question  of  whether  the  insurance  sector  (same  as  banking) 
should  be  in  scope  of  BEFIT,  or  excluded  altogether  (same  as  in  Pillar 1),  given:  their 
activity  is  highly  regulated  and  the  presence  of  local  capital  /people/  premises  in  each 
jurisdiction.  If  it  were  finally  decided  to  bring  financial  institutions  into  the  scope  of 
BEFIT, the formulary apportionment would need to be adjusted, in order to address the 
special nature of financial services. 
Also,  IFRS  allow  the  use  of  materiality  thresholds  in  consolidation.  So,  entities  are 
excluded from the consolidated financial accounts (threshold being agreed with external 
auditors).  BEFIT  should  allow  those  exclusions  as  the  group  does  not  even  collect  the 
local  financial  accounts  of excluded entities and  this would create workload. The same 
issue exists however with the application of the Globe Rules.  

•  Transactions with related parties outside the Group and EU 

The company is in favour of a risk assessment mechanism. They have a rather a positive 
experience  with  something  similar  in  UK.  However,  given  the  complexity  of  their 
business, which is divided in life and non-life insurance, it would be doubtful whether the 
insurance sector could ever qualify for low risk and benefit from simplified compliance. 

•  Accounting standards: 

It is necessary to choose one acceptable accounting standard in the EU (IFRS being the 
most natural one). However, as the application of IFRS 17 is extremely recent, its impact 
on the insurance industry is still unknown, so using it as a tax base could be pre-mature. 
The  use  of  local  GAAPs  could  result  in  material  differences  as  local  GAAPs  can  vary 
significantly. 

•  Tax consolidation regimes: 

They  vary  a  lot  between  MS  and  cannot  be  harmonised  or  compared  easily.  It  is  then 
important  to  agree  on  key  principles  for  the  consolidation  level  of  the  BEFIT 
methodology, as the tax effects of such consolidation regimes are significant in terms of 
money for the group and/ or for the national budgets involved.  

•  Allocation and formula: 

Two activities to be distinguished: - insurance activity and asset management. Allocation 
formula will need to be tailored.  
Insurance  activity:  intangible  assets  are  not  a  relevant  factor  to  the  insurance  industry 
while financial assets are linked and proportionate to the premiums. The payroll factor is 

95 

 
 
 
 
 
 
 
 
 
 
 
 
complex  as  some  very  large  contracts  can  be  managed  by  very  few  employees  and  a 
contrario, a large number of small contracts will require a large number of employees for 
regulation  purposes.  Sales  by  destination  could  be  used  as  a  factor  but  adjusted,  e.g., 
turnover should be net of reinsurance. 

For  this  company,  the  risk  of  the  reallocation  is  that  the  losses  in  their  parent  MS  will 
have to be shared with the other MS. The current system prevents this outcome. 

Asset management: management of assets for 3rd parties, for insurer with this company 
or real estate management. It should be explored how to address the fees received for this 
activity in the formula: fees received for such services (part of sales) 

•  A dispute resolution system should be made available from the beginning. 
•  One  stop  shop  –  not  realistic  (from  their  experience  with  a  TP  file  having  lasted  5-7 

years). 

96 

 
 
 
 
 
 
 
 
 
 
 
Key Takeaways from the BEFIT Building Blocks Interview #11 10-06-2022 

This is a financial institution. 

As  well  as  seeking  input  from  this  company  on  the  main  building  blocks  of  the  BEFIT 
proposal,  this  meeting  also  aimed  to  gather  evidence  on  the  case  for  the  inclusion  or 
exclusion of financial services from the BEFIT scope. 

1. Scope: The company believes that a wide scope is best. They suggested that a staged 
approach could be worth considering and the proposal could begin with a narrow scope 
and then widen over time to include more companies. They did not suggest the exclusion 
of  Financial  Services,  though  some  sectors  with  specific  taxation  rules  could  be 
excluded. 

2.  Tax  Base:  A  common  accounting  standard  would  be  a  simplification.  Every 
translation to another accounting standard is time lost. In relation to possible adjustments 
to reach the tax base, the company suggested that these should be kept to the minimum. 
MS  should  have  freedom  to  implement  specific  national  additional  adjustments.  Key 
common  adjustments  would  be  for  dividends,  depreciation,  intangibles,  tax  loss  carry 
forward/back.  They  suggested  following and  trying  to  build  on  Pillar  2  as  regards 
adjustments.  

3. Formulary Apportionment:  the company believes that intangibles are an important 
element that should be included in any envisaged formula, though they are not a major 
aspect for banks. Sales and labour are important factors in the formula, and this should be 
reflected. The adjustments to the formula for financial services in the CCCTB proposal 
could  be  followed.  The  company  noted  the  political  difficulties  involved  in  reaching 
agreement with EU MS if the formula was to lead to a significant redistribution.   

4. Allocation of Profit with Related Entities outside the Group: The company did not 
see  a  major  issue  with  continue  to  apply  traditional  transfer  pricing  rules  with  related 
entities outside the group. The simplification arising from the use of a formula within the 
EU is on its own a significant development. 

5.  Administration:  The  company  suggested  that  the  point  of  contact  with  the  tax 
authority  will  be  an  important  element  of  BEFIT.  Courts  with  specific  competency  to 
deal  with  BEFIT  could  be  needed.  Multilateral  audits  and  a  One  Stop  Shop  would  be 
good ideas. Businesses may choose to move their Head Office within the EU to MS that 
have tax authorities perceived as being less aggressive. Therefore, a consistent approach 
to the rules and penalties is important. 

97 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
98 

 
 
 
 
 
 
 
 
Key Takeaways from the BEFIT Building Blocks Interview 24/06/2022 #12 

Business sector: Healthcare, Life science  

By way of general  comment,  they expressed strong support for  BEFIT if this could  do 
away with a third of their transfer pricing documentation. 

Scope: 
On the Scope, they made no special remark. This is a large group, which falls within the 
ambit of Pillar 1. 

Calculation of tax base: 
They consolidate their financial accounts in accordance with IFRS (listed ultimate parent 
company in a stock exchange in the EU). 
They mentioned that their business involves very high R&D costs.  

Allocation of tax base via a formulary apportionment 
They focused on intangible assets  and pointed out  that,  given the competition which is 
fostered by the existence of different tax rates, any allocation key needs to bring global 
tax balance and tax certainty. 

Transactions with related parties outside the BEFIT group and in third countries 
They provided positive feedback on the prospect for pre-setting benchmarks. They noted 
that if possible, the benchmarks should be pre-determined and published but clarified that 
different  industries  may  call  for  different  benchmarks  (per  Europe  market),  e.g., 
distribution, contract manufacturing, contract R&D.  

The  also  explained  that  disputes  are  currently  very  lengthy  and  last  many  years,  in 
particular when it comes to activities outside the EU. 

99 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Key Takeaways BEFIT Interview 28.06.2022 #13 

This is a food company. 

Tax Base 
For  building  the  tax  base,  the  company  argued  that  BEFIT  should  avoid  multiple 
accounting GAAPs to coexist and it should be based on an audited reporting base which 
should be unified.   
The  company  underlined  that  for  a  common  EU  tax  base  the  key  reference  should  be 
Pillar 2 rules and that any adjustments to the financial accounting statements should be 
kept  as  simple  as  possible  and  not  require  any  new  IT  update  within  the  group,  as  it 
would be difficult to cope with several new data collection and treatment systems at the 
same time. A major update has to be put in place for the purpose of applying Pillar 2 and 
there is no margin for setting up a new specific one for BEFIT.  

Formulary apportionment 

Formula 
The company explored the possibility of designing more formula models, to achieve a 
greater degree of precision: possibly by sector, country, pre- and post-BEFIT. 
The treatment of intangible assets in the formula should take place at their value, rather 
than through using a proxy, for instance based on R&D costs. 

Effects of the apportionment 
The  company  put  forward  some  ideas  to  alleviate  the  impact  of  income  allocation 
through  the  formula  in  the  event  that  the  outcome  is  not  tax  neutral  for  MS.  More 
specifically, they suggested: 
- either implementing a  transition  period (e.g., 3-5 years) whereby the tax liability of a 
group in a jurisdiction would also take into account the current corporate tax rules. So, if 
BEFIT  leads  to  a  lower  tax  liability,  the  difference  of  tax  up  to  the  current  status  quo 
would be due, in pro-rata, over a number of years; or 
- agreeing compensatory payments of tax amongst MS concerned, if after the allocation – 
a MS challenged that its tax base is too low in comparison to previous years (for the same 
group)  –  by  a  certain  (fixed)  amount.  Then,  that  MS  would  receive a  budgetary 
compensation from the MS where the tax base increased by x% (amount). 

Administration:  

The  company  expressed  support  for  OSS,  joint/coordinated  audits,  provided  that  the 
parties (tax administrations involved) are obliged to come to a result.  

100 

 
 
 
 
 
 
 
 
 
 
 
 
 
Another idea was to make one single tax administration (i.e., the one of the headquarters) 
responsible for the payment of the entire tax liability of the MNE group.  

Key Takeaways BEFIT Interview 10.10.22 #14 

The company noted that they are a large company, based in NL. They gave a description 
of their business model and treatment of IP. 

On the formula they explained that tangible assets are worth less in their industry. They 
indicated  they  would  support  the  inclusion  of  intangible  assets.  If  you  acquire  a 
trademark  this  is  an  intangible  asset,  however  if  it  is  self  developed  this  is  harder  to 
identify. They were also interested in whether the formula would be industry specific, in 
particular  as  regards  the  weighting.  They  noted  that  the  industry  specific  modifications 
would  need  to  be  limited  to  keep  the  system  manageable.  On  the  possible  options  for 
intangible assets they could see different issues arising depending on the approach taken. 
It can be difficult to decipher where costs were borne. 

They  explained  that  they  do  not  consolidate  their  accounts  just  for  Europe.  Therefore 
BEFIT may create an additional exercise. 

The company asked about what would happen to exit taxation under the BEFIT proposal.  

As  regards  administration,  the  company  noted  that  one  tax  return  should  provide  more 
certainty.  They  also  favour  dealing  with  a  lead  tax  authority  in  one  MS.  The  company 
were interested in how the EU and non EU parts of the group will be dealt with. 

The company also asked about the potential interaction with Pillar 1.  

101 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Key takeaways from BEFIT interview 10-11-2022 #15 

General remarks: 
The company is a financial services company with a significant European presence.  

The  broad  BEFIT  objective  of  providing  simple  rules  is  very  welcome.  Paying  tax  on 
consolidated  accounts  makes  sense  and  it  could  make  international  business  easier. 
Banks  will however present  particular difficulties that will need to be  worked out.  The 
company’s  main  concerns  are  how  the  formula  apportionment  will  work  and  its 
interaction with TP with third countries.  

Scope 
They have no definite view at this point on whether financial services should be within 
the scope. In the EU the company structure is a mix of branches and subsidiaries.  

Transactions with related parties outside the Group and EU 
They have a range of transfer pricing approaches (some will be as simple  as cost plus). 
On  the  application  of  a  benchmark  analysis  which  could  be  published  for  businesses 
(whether as a safe harbour or a risk assessment of the rules), the company believes that 
for the easier transactions, a standard/benchmark would reduce the amount  of work for 
them and tax administrations. Other, more complex, transactions would be hard to  find 
benchmarks for, but if this simplification could narrow down the effort expended on this 
by companies and tax administrations then this would be of significant benefit.  

Both  a  safe  harbour  or  a  risk  assessment  approach  for  the  less  complex  transactions 
would be a good idea.  

Tax Base 
If we had to prepare a set of tax rules, there would be differences in MS tax treatment of 
the  base.  With  the  general  move  towards  accounting  standards  these  differences  might 
have evolved.  

The company are consolidated at US level but don’t have a EU parent. The requirement 
to  reconcile  their  individual  financial  statements  with  one  single  acceptable  accounting 
standard would be an additional burden.  

The company are keen for tax and regulation to go hand in hand. A coordination with the 
regulatory  environment  is  very  much  needed,  or  there  is  a  risk  of conflict  between  tax 
and other policy objectives. 

Formulary Apportionment  

102 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The company are in favour of consistency amongst MS and believe it is important that all 
MS use the same formula to calculate the apportionment. COM clarified that the formula 
would  be  set  down  in  the  proposed  directive  and  would  be  the  same  for  all  MS.  In 
relation to possible formula factors, for banks: capital is very important; regulators want 
banks to have capital available. Employees are very important too as well as customers. 
As for intangible assets, they do not know what drive banks’ profits.  

On  the  question  of  a  sector-specific  formula  for  banks  and  what  could  be  part  of  the 
intangibles for the financial sector, the company will reflect and provide follow up. 

103 

 
 
 
 
 
 
 
 
ANNEX 3: WHO IS AFFECTED AND HOW? 

1.  PRACTICAL IMPLICATIONS OF THE INITIATIVE 

The initiative will directly impact businesses with presence in other Member States and 
also national tax authorities. Citizens will indirectly benefit from the increase in GDP and 
tax  revenues.  The  implications  below  relate  to  the  preferred  option,  as  described  in 
Chapter 8 of the impact assessment report and summarise what is explained in section 6.3 
(Impact of BEFIT). 

The parent company of a BEFIT group will be required to aggregate the tax base of all 
BEFIT group members, apply the allocation method (to distribute the aggregated tax base 
among  the  group  members),  and  finally  to  prepare  the  BEFIT  Information  Return  and 
submit it to the Filing Authority. These companies will bear some initial adjustment costs 
for  training  the  personnel  to  the  new  rules  and  acquiring  customised  IT  software 
(necessary to adapt their Enterprise Resource Planning (ERP) system and to automatise 
the procedures). It is expected that these recurrent costs will become “business as usual” 
quite  shortly  and  indeed  replace  the  current  way  of  dealing  with  tax  compliance. 
Enhanced tax certainty for transfer pricing, as a result of the transitional risk criteria for 
intra-group  transactions  within  the  BEFIT  group  (and  potentially  elimination  of  the 
requirement  to  remain  consistent  with  the  arm’s  length  principle,  i.e.,  in  the  case  of 
formulary apportionment) as well as the ‘traffic light system’ for transaction with related 
parties outside the BEFIT group, should also bring some cost savings for MNEs thanks 
to the expected decrease in the number of litigation cases.  

Tax authorities will be impacted by the role as ‘Filing Authority’ and the BEFIT Teams. 
The burden (mainly on human resources) will depend on the number of BEFIT groups in 
scope and the role in the BEFIT Teams. However, apart from the initial cost for training, 
the  additional  human  resources  devoted  to  implementing  BEFIT  are  expected  to  be 
limited,  especially  considering  that  BEFIT  will  replace  national  corporate  income  tax 
systems for the in-scope groups. In addition, tax authorities will enjoy a reduced burden 
linked to transfer pricing risk assessment, audits and disputes thanks to the fact that both 
BEFIT and the common EU approach to transfer pricing will include criteria that provide 
more predictability and harmonisation, and that can, as such, assist tax administrations in 
their efforts and reduce litigation costs.  

104 

 
 
 
 
 
 
 
As  indicated  for  the  initiative’s  objectives  in  Chapter  4,  the  below  table  provides  an 
overview  of  the  Sustainable  Development  Goals  (SDGs)71  that  are  at  stake  and  the 
progress that is expected under the preferred option for BEFIT, as described in Chapter 8.  

Overview of relevant Sustainable Development Goals – Preferred Option 

Relevant SDG 

Expected  progress  towards 
the Goal 

Comments  

SDG  no.  8  –  Promote 
inclusive  and 
sustained, 
sustainable 
economic 
growth,  full  and  productive 
employment 
decent 
work for all 

and 

SDG  no.  9  -  Build  resilient 
infrastructure, 
promote 
inclusive  and  Sustainable 
industrialization  and  foster 
innovation 

BEFIT  is  expected  to  lead 
–  in  the  long  term  to  a 
positive  impact  on  GDP  – 
see below 

The  initiative  will  reduce 
tax compliance costs, have a 
positive  effect  on  cross-
and 
border 
tackle  distortions 
the 
market,  thereby  stimulates 
economic 
and 
growth 
investment in the EU. 

investment 

in 

the 

to 
Although  not  possible 
overall 
quantify, 
in  compliance 
reduction 
indirectly 
may 
costs 
contribute 
freed 
if 
resources  are  used  by 
businesses 
in 
to 
innovation.   

invest 

the 

in 

IT 

and 

implementation  will 
substantial 
require 
for 
tax 

The 
also 
investment 
taxpayers 
administrations. 
Digitalising 
tax 
compliance  of  cross-border 
large  groups  is  likely  to 
and 
trigger 

innovation 

the 

71 See Resolution adopted by the UN General Assembly on 25 September 2015, A/RES/70/1, Transforming 
our  world:  the  2030  Agenda for  Sustainable  Development |  Department  of  Economic  and  Social  Affairs 
(un.org).  

105 

 
 
 
 
 
 
 
 
 
encourage  progress  in  IT 
and artificial intelligence, in 
order 
the 
to 
challenges 
this 
unprecedented structure. 

tackle 
of 

2.  SUMMARY OF COSTS AND BENEFITS  

As  explained  in  section  6.3.4,  it  has  not  been  possible  to  estimate  costs  with  any 
precision because the envisaged proposals have no precedent that we can refer to. Also, 
stakeholders  were  not  in  the  position  to  provide  any  quantitative  estimations  of  such 
costs, not even at a qualitative level.  

In  addition,  depending  on  the  business  model  of  the  different  groups,  the  cost  of 
implementing BEFIT is  expected to  differ substantially. For instance,  a group which is 
centrally  organised  would  have  less  costs  than  a  retail  group  which  maintains  a  large 
number of subsidiaries with presence in most Member States.  

Below, an attempt is made to describe some of the possible costs, noting that these are 
likely  to  be  relatively  very  small  when  compared  to  the  potentially  large  cost  savings 
derived from simplification.  

Description 

Amount 

Comments 

–  I. Overview of Benefits (total for all provisions) – Preferred Option 

Reductions of CIT-related 
compliance costs for cross-
border operating firms 
(large enterprises and SME 
groups included). 

For all large MNE groups of companies:  
-  Upper-bound estimation: EUR 80 million 

Chapter 6 provides explanation for 
estimates under different scenarios.  

Direct benefits 

per year 

-  Lower-bound estimation: EUR 42 million 

per year  

For only MNEs with turnover above EUR 750 
million:  
-  Upper-bound estimation: EUR 22 million 

per year 

-  Lower-bound estimation: EUR 11 million 

per year 

Cost savings in legal advice 
and litigation procedures 
concerning transfer pricing 
for MNEs.  

Difficult to estimate. Litigation costs can range 
from several thousands to a few millions per 
firm per case. More tax certainty and common 
rules can lead to a substantial reduction of such 

106 

 
 
 
 
 
 
 
 
Common rules for the tax 
base, will lead to higher 
company investment, and 
higher GDP. 

costs.   

In the long run, from cross-border loss relief: EU 
GDP could be higher by +0.1% relative to the 
status quo for MNEs with turnover above 
EUR 750 million. 
In the long run, from harmonised EU rules on 
tax depreciation: GDP could be higher by some 
+0.04% for all MNEs. 

Indirect benefits 

Administrative cost savings related to the ‘one in, one out’ approach(*) 

Reductions  of  CIT-related 
compliance  costs  for  cross-
border 
firms 
operating 
(large  enterprises  and  SME 
groups included). 

For all large MNE groups of companies:  
-  Upper-bound estimation: EUR 80 million 

per year 

-  Lower-bound estimation: EUR 42 million 

per year  

For only MNEs with turnover above EUR 750 
million:  
-  Upper-bound estimation: EUR 22 million 

per year 

-  Lower-bound estimation: EUR 11 million 

per year 

(*)  While it is difficult to identify the precise nature of the costs savings, one can assume that the great 
majority are related to administrative activities/reporting obligation, rather than adjustment costs.   

•  II. Overview of costs – Preferred option 

• 

• 

•  Citizens/Consum

•  Businesses 

•  Administrations 

ers 

One-off  Recurren

One-off  Recurrent  One-off 

Recurrent 

N/A 

N/A 

t 

Direct 
adjust
ment 
costs 

EUR 297 
million 

From 
EUR 15 
million to 
EUR 29 
million 

BEFIT 

Direct 
administrative costs 

N/A 

N/A 

N/A 

N/A 

From 
EUR 5 
million to 
EUR 9 
million 
per year 

Staff devoted to exchange of 
information among tax 
administrations in MS where 
each BEFIT group maintains 
taxable presence. There not 
necessarily additional to the 
current system, but resources 

107 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
N/A 

N/A 

N/A 

N/A 

N/A 

will be used differently 
(reallocation of existing 
resources) 

Negligible (reallocation of 
existing resources) 

N/A 

N/A 

N/A 

Cost of 
training to 
become 
familiar 
with the 
new rules 

N/A 

Cost of 
training to 
become 
familiar 
with the 
new rules 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

Direct enforcement 
costs 

Direct adjustment 
costs 

Transfer 
Pricing 

Direct 
administrative costs 

Direct enforcement 
costs 

As explained above, it has not been possible to estimate costs for stakeholders with any 
precision. 

Total   

Direct and 
indirect 
adjustment costs  

Administrative 
costs (for 
offsetting) 

•  Costs related to the ‘one in, one out’ approach 

N/A 

N/A 

N/A 

From EUR 15 
million to 
EUR 29 
million 

N/A 

N/A 

N/A 

From EUR 5 
million to 
EUR 9 million 
per year 

(1) Estimates (gross values) to be provided with respect to the baseline; (2) costs are provided for 

each identifiable action/obligation of the preferred option otherwise for all retained options when 
no preferred option is specified; (3) If relevant and available, please present information on costs 
according to the standard typology of costs (adjustment costs, administrative costs, regulatory 
charges, enforcement costs, indirect costs;). (4) Administrative costs for offsetting as explained in 
Tool #58 and #59 of the ‘better regulation’ toolbox. They should be presented as “recurrent 
annual costs” and “one-off costs” (presented as net present value of costs over the whole period). 
The total adjustment costs should equal the sum of the adjustment costs presented in the upper 
part of the table (whenever they are quantifiable and/or can be monetised). Measures taken with a 
view to compensate adjustment costs to the greatest extent possible are presented as relevant in 
the section of the impact assessment report presenting the preferred option.  

108 

 
 
 
 
 
 
 
 
 
 
 
ANNEX 4: ANALYTICAL METHODS 

1. 

Assumptions for the survey-based projection of compliance cost reduction 

A company survey for the European Commission on Tax Compliance Costs, conducted 
by VVA/KPMG and published in January 2022, is the major source of analysis.72 It looks 
at  firms’ tax  compliance costs caused by specific types of taxes. Apart  from Corporate 
Income Tax (CIT), the survey also covers administrative burdens caused by Value Added 
Tax, wage-related taxes, property and real estate tax and local taxes. The sample covers 
around 2 400 firms, and the dataset also provides weights for each firm, needed to project 
the  total  firm  population  represented  by  the  sample.  Survey  questions  refer  to  the 
situation of the respective firm in the year 2019.  

The  Compliance  Cost  projections  in  Chapter  6  take  into  account  both  outsourced  and 
internalised  compliance  activities.  If  internalised,  the  survey  asks  for  frequency  of  data 
collection as well as the hours spent on data collection, preparation, review, submission 
and  other  related  activities.  It  is  thus  possible  to  calculate  total  hours  internally  spent 
within the firm on the different CIT-related compliance activities. These hours were then 
multiplied  by  average  hourly  labour  costs  for  administrative  and  support  activities.73 
Total CIT Compliance Costs are then the sum of outsourced and internalised compliance 
costs. 

The survey information also includes relevant firm characteristics:  

the size of the firm (turnover, number of employees);  

• 
•  whether not the firm operates cross-border74; 
•  whether or not the firm in subject to ‘regular’ CIT or to some kind of ‘simplified 

tax regime’. For information see Box 1.   

Source: 

Eurostat, 

72  VVA/KMPG  for  the  European  Commission  (2022).  See  https://op.europa.eu/en/publication-detail/-
/publication/70a486a9-b61d-11ec-b6f4-01aa75ed71a1/language-en 
73 
series 
[LC_LCI_LEV__custom_5553786]. 
74  In  the  study,  cross-border  activities  are  defined  as  “all  activities  which  involve  the  selling  of  goods, 
services  or  intangibles  to  a  country  other  than  the  enterprise’s  home  country”  (European  Commission, 
2022, p. 11). In other words the definition is quite broad and not necessarily just about what we consider 
foreign direct investment. 

by  NACE 

activity 

Labour 

levels 

Rev. 

cost 

2 

109 

 
 
 
 
 
 
 
 
110 

 
 
 
 
 
 
 
 
Box 1: “Simplified Tax Regimes” as identified in the VVA/KPMG survey 

The  VVA/KPMG  company  survey  includes  one  dedicated  question  on  whether  the 
respective enterprise is “subject to Corporate Income Taxation or a simplified tax regime on 
income”.  A  simplified  tax  regime  could  be  a  lump-sum  tax,  the  filing  of  simplified  tax 
returns  requirements,  simplified  accounting  rules,  balance  sheet  or  income  statement 
requirements,  or  other  simplified  documentation  rules.  Stakeholders  interviewed  for  the 
study  tend  to  have  a  positive  view  on  Simplified  Tax  Systems,  considering  them  as  a 
solution for reducing administrative burdens.  

2.  What  is  the  potential  of  reducing  CIT  related  compliance  costs  through 

simplifying corporate taxation? 

To  approximate  the  potential  decline  of  CIT-related  compliance  costs  through  reduced 
complexity  of  a  tax  system,  a  linear  regression  analysis  was  performed.  The  model 
explains  total  (logarithm  of)  CIT-related  Compliance  Costs,  calculated  as  explained 
above, on a set of explanatory variables that include:  

the (log) number of employed workers (in quintiles),  
the (log) turnover (in quintiles), 

• 
• 
•  a  binary  dummy  CROSS,  informing  about  whether  the  firm  operates  cross-

border, 

•  a binary dummy SIMPL informing whether the firm is subject to a ‘simplified tax 

regime’ or CIT, 

•  an interaction term CROSS x SIMPL informing whether the impact of operating 

• 

cross-border is moderated by the availability of a simplified tax regime, 
fixed  effects  controlling  for  the  sector  and  the  jurisdiction  in  which  the  firm 
operates. 

The table below shows to  what  extent the CIT-related compliance costs  would decline, 
relative to the respective reference category. For Model 2, which contains the interaction 
term, the reference category are purely domestic firms not subject to simplified tax rules. 
All coefficients are highly statistically significant (p<.001). 

Table A4.2: Explaining CIT related CC, regression analysis, selected coefficients 

Variable 

% change relative to reference 
Model 1 

Model 2 

Model 3 

111 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CROSS 
SIMPL  
CROSS x SIMPL 
Control for firm size 
Source: Commission services, based on data from VVA/KMPG (2022).  

+10%   
+35%   
-25% 
yes 

+2% 
+30%   

yes 

+29% 
+24% 
-54% 
no 

All models control for country- and sector specificities. Only Models 1 and 2 control for 
firm  size  (the  number  of  employees,  the  firm’s  turnover)  The  simple  model  without 
interaction  term  (Model 1)  reveals  that  operating  cross-border  increases  CIT-related 
compliance  costs  overall.  However,  if  the  interaction  term  is  included  in  the  model 
(Model 2), it becomes clear that the availability of simpler tax rules matters a lot for 
the  level  of  compliance  costs.  If  a  simplified  tax  regime  is  not  available,  cross-border 
operating firms have, on average, 10% higher CIT compliance costs than domestic firms 
not  subject  to  a  simplified  tax  regime  (the  reference  group).  By  contrast,  if  there  are 
simplified tax rules, cross-border operating firms have 25% lower compliance costs than 
the reference group. Therefore, the regression analysis suggests that the simplification of 
tax rules has a very positive effect on cross-border operating firms in the sense that they 
are  able  to  reduce  compliance  costs  very  substantially:  by  32%,  relative  to  cross-
border operating firms with no access to simplified rules.75  

The  chart  illustrates  these  regression  results,  normalising  the  CIT  compliance  costs  of 
domestic  firms  without  simplified  tax  regime  to  a  value  of  100.  This  is  the  reference 
situation.  The  CC  for  cross-border  operating  firms  without  simplified  regime  would  be 
110  (+10%  higher  than  in  the  reference  situation),  while  with  simplified  regime  they 
would amount to 75 (25% lower than in the reference). For cross-border operating firms, 
simplified schemes would then make a difference of 35, corresponding to 32% of 110. 

Chart A4.1: Illustration of the regression results: CIT compliance costs by firm type 

75 That is: (100%-25%)/(100%+10%)=(100%-32%).  

112 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: Commission services, based on data from VVA/KMPG (2022).  

The findings strongly support the introduction of a new, simpler Corporate Tax System 
in  the EU.  Model  3 above does not  control for the number of  employees and turnover, 
both representing firm size. The interaction effect of operating cross border and dispose 
of simplified tax system is then much stronger. This implies that the interaction effect is 
stronger for big firms. Big multinationals find it easier to exploit simplified tax systems 
for tax compliance.  

3. 

The estimated scope of BEFIT based on the EuroGroups register and CbCR 

Estimating the number of MNEs in scope is not  straightforward. Aggregate CbCR data 
can assist insofar as it covers MNEs with a consolidated yearly revenue exceeding EUR 
750 million. For the most recently published reporting year (2018), CbCR data suggests 
that  4,082  MNEs  fall  in  this  category.  By  contrast,  in  the  firm-level  database  Orbis, 
3,647  MNEs  with  consolidated  revenue  exceeding  EUR  750  million  can  be  identified. 
From these two data sources one could thus derive a selection bias of around 11% (i.e., 
3,647/4,082=89%). When it comes to MNEs whose annual combined revenues are up to 
EUR  750  million  and  who  prepare  consolidated  accounts,  their  number  in  Orbis  is 
14,000.  With  a  selection  bias  of  at  least  11%  this  would  imply  an  additional  at  least 
15,700 MNEs in scope.  

An  alternative  source  of  data,  the  ECB’s  EuroGroups  Register  (EGR)  reports  some 
213,000  MNE  groups  for  the  year  2018.  Subtracting  4,082  groups  with  a  consolidated 

113 

10011075020406080100120Domestic firmsCross-border operatingfirmsCross-border operatingfirmsWITHOUT simflified schemeWITH simflified schemeNormalised to a value of 10035 (32% of 110) 
 
 
 
 
 
 
 
yearly revenue exceeding EUR 750 million would yield some 209,000 groups below that 
threshold. Of those, one can estimate that around 7.5% (15,700/213,000) groups) prepare 
consolidated financial statements. 

The potential impact of more productivity-enhancing investment: a 

4. 
simulation with Labour Market Model (LMM) 

LMM  is  a  general  equilibrium  model  jointly  used  by  DGs  EMPL  and  TAXUD.  It 
incorporates a very explicit description of labour market institutions.76 It therefore allows 
modelling  of  structural  reforms  in  the  labour  market,  such  as  investment  in  human 
capital.  It  distinguishes  eight  age-  and  three  qualification-groups.  LMM  is  run  at  state 
level.  

LMM is used to demonstrate the impact of a potential boost in investment as firms save 
on compliance cost and gain more legal transparency and certainty as they operate cross-
border.  In  other  words,  the  concept  of  compliance  costs  used  for  this  simulation  is  a 
wider as it does not only include the direct reduction of pecuniary costs today’s MNEs 
could  benefit  from.  It  is  assumed  that  the  (re-invested)  cost  reduction  will  be  -0.1%  of 
GDP.  The  exact  reduction  is  unknown.  The  interesting  information  to  extract  from  the 
analysis is the multiplier effect of a given investment on GDP.  

A simulation will be performed for all 15 Member States currently supported by LMM. 
Investing  0.1%  of  GDP  in  productivity-enhancing  training  for  workers  would  result  in 
the following changes: 

Model  simulation:  estimated  effect  on  selected  variables  of  a  reduction  of  CIT 
compliance cost, reinvested in firm-sponsored training (15 Member States) 

Source: TAXUD calculations with LMM  

76  Berger,  J.,  Keuschnigg,  C.,  Keuschnigg,  M.,  Miess,  M.,  Strohner,  L.  and  Winter-Ebmer,  R.  (2009), 
Modelling of 
Labour Markets in the European Union - Final Report to the European Commission (Parts I to IV). 

114 

min (15 cntr)max (15 cntr)GDP+0.1%+0.3%Investment+0.1%+0.3%Employment+0.1%+0.2%Wages+0.2%+0.3% 
 
 
 
 
 
 
 
 
Due  to  technical  limitations  of  LMM  in  the  context  of  simulation  CIT-related  policy 
measures, the changes are to be interpreted as lower-bound estimates.77 The training will 
directly  translate  in  higher  labour  productivity,  fuelling  demand  for  workers  (hence 
pushing  wages)  and  physical  investment.  The  simulation  shows  that  productivity-
enhancing  investment  could  results  in  GDP-increases  up  to  three  times  the  initial 
investment.  

5. 

On Country-By-Country Reporting data 

One of the data bases of Chapter 6 is the OECD’s Country-By-Country Report (CbCR) 
data. CbCRs are typically filed by large MNEs (consolidated turnover at least EUR 750 
million)  to  the  tax  administration  of  the  country  where  the  ultimate  parent  entity  is 
located.  As  a  next  step,  tax  administrations  compile  the  different  reports  into  a  single 
dataset and share it with the OECD who will produce the anonymised dataset.  

CbCR  data  includes  a  number  of  variables  such  as  revenues,  Profit/Loss  Before  Tax, 
taxes paid, sales, production etc. at firm level. It also includes information on employees 
and on related and unrelated party revenues. CbCR includes all global activities of MNEs 
and allows for the domestic and foreign activities of MNEs to be separately identified. 

What  makes  it  particular  is  that  it  shows  this  data  in  a  matrix  format:  For  each 
headquarter of the MNE by subsidiaries in partnering jurisdiction. It informs about those 
variables by subsidiary, allowing to analyse how they are distributed across the countries 
in which the respective MNE is present. Public CbCR data78 is provided at group level, 
aggregated by jurisdiction. Explanatory reports about CbCR data are available.79 

CbCR  data  comes  with  an  array  of  caveats  and  limits.  There  seems  to  be  limited 
reporting in some EU countries. There may also be differences in accounting rules across 
jurisdictions.  There  may  be  some  double  counting,  as  MNEs  may  have  included  intra-
country  dividends  in  their  profits.  Another  problem  is  timing.  The  latest  published 
aggregated  CbCR  data  in  the  OECD  website  relates  to  2018.  According  to  the  OECD, 

77 Declining compliance costs cannot be modelled with LMM. The exact measure simulated here is a state 
subsidy granted to firms for offering firm-sponsored training to workers, funded via lump-sum taxes from 
households. The above interpretation, i.e., declining compliance costs generating additional resources for 
firms to sponsor training, is not perfectly accurate in that context. Higher taxes on households would cet. 
par. dampen economic activity somewhat. 
78 OECD.stat website: Table I - Aggregate totals by jurisdiction (oecd.org). 
79 OECD, Corporate Tax Statistics, 4th Edition, 2022. Available at: Corporate Tax Statistics: Fourth Edition 
(oecd.org) 

115 

 
 
 
 
 
 
 
2019  and  2020  CbCR  data  is  due  to  be  published  only  mid-2023.  An  overview  of 
potential limitations is given by the OECD.80  

80 OECD, Important disclaimer regarding the limitations of the Country-by-Country report statistics, 2022. 
Available  at:  Important  disclaimer  regarding  the  limitations  of  the  Country-by-Country  report  statistics 
(oecd.org) 

116 

 
 
 
 
 
 
 
 
 
ANNEX 5: COMPETITIVENESS CHECK AND SME TEST 

1.  OVERVIEW OF IMPACTS ON COMPETITIVENESS  

Dimensions of 
Competitiveness 

Impact of the initiative 
(++ / + / 0 / - / -- / n.a.) 

References to sub-sections of the 
main report or annexes 

Cost and price competitiveness  ++ 

International competitiveness  

Capacity to innovate 

SME competitiveness 

+ 

+ 

+ 

Synthetic assessment 

Chapters 3.2, 4, 6, 7 

Chapters 3.2, 4, 6, 7 

Chapters 3.2, 4, 6, 7 

Chapters 3.2, 4, 6, 7 

By introducing a common approach and common rules, the initiative is expected to have a positive 
impact  on  cost  and  price  competitiveness.  The  initiative  pivots  on  simplifications  of  the  current 
corporate tax rules which will reduce compliance costs for business operating in all sectors in the 
internal market. For example, for BEFIT, the calculation and aggregation of the tax base based on 
EU-wide common rules will do away with complex and costly practices.  

The rules are  also  expected to  establish a level  playing field,  break down barriers to  cross-border 
expansion and trade and, as such, improve the international competitiveness of EU businesses vis-à-
vis non-EU businesses, particularly those operating in other big markets. For BEFIT, the alignment 
with  GloBE  Rules  under  Pillar  2  and  the  aggregation  and  allocation  of  a  common  tax  base  may, 
further, contribute to creating a competitive and forward-looking business environment in the EU. 
The common approach to transfer pricing norms is also expected to add to this outcome. 

BEFIT does not directly touch upon businesses’ capacity to innovate as such. Although the overall 
reduction in compliance costs may, indirectly, have an impact as it will release an amount that can 
be used on a number of activities, including investing in innovation. For BEFIT, the calculation of 
the  tax  base  allows  for  additional  adjustments  to  the  allocated  part  of  the  aggregated  tax  base  in 
areas not covered by BEFIT, which may provide space for stimulating growth and investment, also 
in targeted areas, such as research and development. 

2.  THE SME TEST   

Identification  of  SMEs:  The  initiative  is  not  specifically  addressed  to  SMEs.  However,  BEFIT 
offers  optional  rules  for  SMEs  which  are  part  of  a  group  that  will  enable  them  to  choose  the 
simplest  and  most  cost-efficient  option  based  on  their  individual  needs.  All  SME  groups  that  file 

117 

 
 
 
 
 
 
 
consolidated  financial  statements  are  eligible  under  BEFIT.  In  addition,  the  common  approach  to 
transfer pricing will apply to SMEs which are part of a group. 

Consultation of SME stakeholders: See Annex 2. 

Impacts: BEFIT, with  all  the simplifications that it offers for groups of companies,  is  open to  all 
SME groups provided that they file consolidated financial statements. Considering that the system 
is optional for SMEs, we do not  estimate adverse effects.  SMEs which are part of a group would 
already have to comply with transfer pricing rules. The introduction of the common approach may 
entail  limited transition costs but,  over time, it  is expected to decrease compliance costs, enhance 
legal certainty and reduce disputes. 

Consultation of alternative options: It was considered to make BEFIT mandatory for smaller groups 
which file consolidated financial statements. The administrative burden and compliance costs were, 
however, found to potentially outweigh the benefits of a common system for smaller businesses. 

Minimising negative impact on SMEs. Policy options in this proposal have considered an optional 
or mandatory scope for SMEs group and under the preferred policy option, SMEs are free to opt-in. 
The initiative will thus not impose any requirements on SMEs if you do not opt in.  

118 

 
 
 
 
 
 
 
 
ANNEX 6: THE OECD TWO-PILLAR APPROACH 

Background 

Mandated  by  the  G20,  the  OECD/G20  Inclusive  Framework  is  currently  working  on  the 
implementation of a global, consensus solution to reform the international corporate tax framework. 
The reform is based on two main work streams: Pillar 1 (re-allocation of taxing rights) and Pillar 2 
(minimum effective taxation). The two Pillars aim to address different but related issues linked to 
the increasing globalisation and digitalisation of the economy.  

Pillar 1 aims to better link taxing rights to the market jurisdiction where the final customers are. It is 
noteworthy that the scope of Pillar 1 will be limited to  a relatively low number of the largest and 
most  profitable  multinationals  only,  while  Pillar  2  will  apply  to  multinational  groups  with  annual 
combined revenues that exceed the EUR 750 million threshold, thus leaving all companies below 
this threshold out  of the scope. Pillar 2 is  expected to  put  an end to  the race to  the bottom  in  tax 
competition  among 
tax  planning.  The 
implementation of Pillar 2 is quite advanced, and the Pillar 2 Directive81 requires Member States to 
enact  national  transposition  measures  by  31  December  2023.  It  is  expected  that  the  majority  of 
global  partners  will  follow  the  same  (or  similar)  timeline  for  their  implementation  of  minimum 
effective taxation of multinationals’ profits. 

tackle  aggressive  corporate 

jurisdictions  and 

to 

For  such  a  global  agreement  to  function  effectively,  it  needs  to  be  administrable  for,  and  among, 
more than 140 jurisdictions, with diverse economic profiles and levels of administrative capacity. In 
addition, extensive global reforms may lead to an increase in the compliance burden for taxpayers 
and tax administrations.  

Interaction between the initiatives and the Pillars 

Pillars 1 and 2 will co-exist with the national corporate tax rules of each jurisdiction. Although the 
Pillars address  related issues, their focus and objectives do not  necessarily  coincide with  those of 
general corporate tax systems. Pillar 1 thus deals with re-allocating the taxable income of the most 
profitable groups of companies worldwide, in order to better adapt the corporate tax systems to the 
new ways that businesses organise themselves in. Pillar 2 aims to ensure that the corporate income 
tax liability of a group of companies does not fall below a level of 15% per jurisdiction. 

Pillar 1 

Pillar  1  uses  a  formula  based  on  sales  by  destination  to  re-allocate  part  of  the  tax  base  of  certain 
very  highly  profitable  MNE  groups  towards  the  market  jurisdictions  where  the  group  meets  the 

81 Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation 
for multinational enterprise groups and large-scale domestic groups in the Union. 

119 

 
 
 
 
 
 
 
‘new nexus’ requirement; this is based on a revenue threshold regardless of the physical presence of 
the group in the jurisdiction. As a result, some jurisdictions increase their tax base whereas others 
have it diminished. The aim is to bring more fairness in the distribution of the tax base within large 
multinational  groups  by  allocating  higher  amounts  to  the  jurisdictions  of  the  customers’  location. 
The Pillar 1 framework is expected to include parameters for determining which jurisdiction is a net 
receiver and which a net contributor within the structure of an in-scope group. Many elements  of 
Pillar  1  are  currently  still  under  discussion  and  on  this  basis,  it  is  difficult  to  reach  definitive 
conclusions on all aspects. 

Instead  of  Pillar  1  interacting  with  the  domestic  corporate  income  tax  systems,  it  will  have  to 
interact with BEFIT for large groups, as this common system will replace the national corporate tax 
rules for the groups in scope. Member States will consequently need to adjust the tax base granted 
under  BEFIT  with  either  additional  tax  base  allocated  under  Pillar  1  or  offset  an  amount  for 
eliminating double taxation. In this way, the outcome of the re-allocation of the Amount A under 
Pillar 1 would be fully respected in a manner integrated within the BEFIT rules. Another synergy 
will be the ongoing work on Amount B under Pillar 1, which also aims to provide more certainty to 
businesses  on  transfer  pricing  compliance.  The  ‘traffic  light  system’  under  BEFIT  should  aim  to 
achieve the same purpose for the risk assessment benchmarks, taking inspiration from Amount B, 
and the initiative on Transfer Pricing will integrate the OECD arm’s length principle into EU law. 
In this way, these initiatives are closely related and complementary.  

Pillar 2 

Pillar  2  aims  to  ensure  that  corporate  tax  was  charged  at  a  minimum  tax  rate  of  15%  per 
jurisdiction, while BEFIT essentially concern the tax base. Unlike Pillar 1, which also deals with the 
tax base, Pillar 2 and BEFIT concern different substantive areas.  

Nonetheless, there can be interactions to the extent that Pillar 2 and BEFIT have the same scope. 
For BEFIT, the preferred option is to align the mandatory scope with the Pillar 2 Directive, which 
means BEFIT would apply to the same groups, but limited to their EU sub-set. In this way, BEFIT 
would  build  on  the  existing  policy,  which  remains  clearly  delineated  and  consistent.  Groups  that 
would voluntarily apply BEFIT are not concerned by Pillar 2.  

Introducing a common approach to transfer pricing would in principle also apply to the groups in 
scope of Pillar 2. There is no direct interaction or conflict between the minimum tax rate of Pillar 2 
and the integration of the OECD arm’s length principle and Transfer Pricing Guidelines in EU law, 
or at least not more than with any other corporate tax rule that is used to determine the tax liability 
of  a  group.  Additionally,  the  fact  that  both  Pillar  2  and  the  transfer  pricing  initiative  follow  an 
international approach that is discussed at the same organisation, the OECD, will ensure the highest 
level of compatibility.   

BEFIT will replace national corporate tax systems for the groups of companies in scope of Pillar 2, 
which  means  the  rules  of  Pillar  2  will  naturally  come  into  play  after  the  group  has  been  charged 
corporate tax, in order to confirm whether the actual level of corporate tax liability corresponds to a 

120 

 
 
 
 
 
 
rate  of  at  least  15%.  It  follows  that  the  sequencing  between  BEFIT  and  Pillar  2  is  quite 
straightforward.  

It  is  also  worth  recalling  that  the  design  of  a  new  system  like  BEFIT  will  be  able  to  align  with 
features of Pillar 2, contrary to  national  corporate tax rules which  are  already in  place  and which 
differ between Member States. For instance, the preferred option under  BEFIT is to apply limited 
tax  adjustments  to  the  financial  accounting  statements.  This  can,  and  it  is  envisaged  that  it  will, 
closely  follow  the  rules  of  Pillar  2,  which  is  currently  not  the  case  for  the  national  corporate  tax 
accounting  rules  to  calculate  the  tax  base.  On  the  assumption  that  BEFIT  will  indeed  take  the 
financial accounting statements as a starting point, the room for discrepancies between BEFIT and 
Pillar 2 is thus expected to be limited.  

Nonetheless, a few issues have been identified and will be resolved in the legal design or in practice 
in the context of regular communication and coordination between the Commission services and the 
OECD Secretariat. This  will also  be a more  efficient way to  address  any  mismatches, rather than 
having to address varying mismatches with national rules at the same time.  

In a nutshell, the initiative interacts in a more complex way with Pillar 2, compared to the currently 
applicable national corporate tax systems. In fact, BEFIT contributes a degree of simplification to 
the extent that it is closely based on the Pillar 2 rules. 

121 

 
 
 
 
 
 
 
 
 
ANNEX 7: TRANSFER PRICING  

1.  What is Transfer Pricing about? 

Transfer pricing refers to the setting of prices for transactions between associated enterprises (i.e., 
members  of  the  same  Multinational  Enterprise  -  MNE)  involving  the  transfer  of  property  or 
services.  

A  significant  volume  of  global  trade82  consists  of  international  transfers  of  goods  and  services, 
capital  and  intangibles  (such  as  intellectual  property)  within  an  MNE;  such  transfers  are  called 
“intragroup transactions”. 

The  “intragroup  transactions”  are  not  necessarily  governed  by  market  forces  but  may  largely  be 
driven by the common interests of the group as a whole. 

Since tax calculations are generally based on entity-level accounts, the prices or other conditions at 
which  these  intragroup  transactions  take  place  will  affect  the  relevant  entities’  income  and/or 
expenses in relation to those transactions, and as a consequence, will impact on the amount of profit 
each group entity records for tax purposes.  

A  higher  price  increases  the  seller’s  income  and  decreases  the  buyer’s  income.  A  lower  price 
decreases  the  seller’s  income  and  increases  the  buyer’s  income.  The  transfer  price  therefore 
influences the tax base of both the country of the seller and the country of the buyer involved in a 
cross-border transaction. 

It is therefore important to establish the appropriate price, called the “transfer price”, for intragroup 
transfers.  “Transfer  pricing”  is  the  general  term  for  the  pricing  of  transactions  between  related 
parties.  

2.  What is the key principle of transfer pricing?  

Transfer pricing rules are based on the so-called arm's length principle (ALP). This principle was 
developed by the League of Nations in the 1920s and is embedded in the tax treaties (usually article 
983) since then. 

82 A study of the World Trade Organization (Nordas, 2003) estimates intra-firm trade at 1/3 of world trade 
flows in 2003.  
83 For example, art. 9 par. 1 of the OECD Tax Model Convention provides that “Where  

122 

 
 
 
 
 
 
 
 
 
In  simple  terms,  the  arm’s  length  principle  prescribes  that  individual  group  members  of  a  MNE 
must  transact  with  each  other  as  if  they  were  independent  third  parties.  In  other  words,  the 
transactions between two related parties should reflect the outcome that would have been achieved 
if the parties were not related, i.e., if the parties were independent of each other and the outcome 
(price or margins) was determined by (open) market forces.  

Under the arm’s length principle, transactions within a group are compared to transactions between 
unrelated entities under comparable circumstances to determine acceptable transfer prices. Thus, the 
market place comprising independent entities is the measure or benchmark for verifying the transfer 
prices for intragroup transactions and their acceptability for tax purposes.  

Under  the  arm’s  length  principle,  intragroup  transactions  are  tested  and  may  be  adjusted  if  the 
transfer  prices  or  other  terms  of  the  transactions  are  found  to  deviate  from  those  of  comparable 
uncontrolled transactions.  

The  arm’s  length  principle  is  recognised  as  international  standard  for  allocating  profit  between 
associated enterprises in both the OECD and UN Model Conventions. 

3.  What is the relevant legislative framework for transfer pricing?   

As said above, transfer pricing rules are based on and implement the provisions of the Associated 
Enterprises Article (generally Article 9) of most bilateral tax treaties.  

Both article 9 of the OECD Model and article 9 of the UN Model contain similar provision which 
allow for profit adjustments if the actual price or the conditions of transactions between associated 
enterprises  differ  from  the  price  or  conditions  that  would  be  charged  by  independent  enterprises 
under normal market commercial terms, i.e., an arm’s length basis.  

In  order  to  avoid  double  taxation,  both  provisions  also  require  that,  under  certain  conditions,  an 
appropriate “corresponding adjustment” be made by the other Contracting State. In other words, if 
one country increases the profit attributed to  one side of the transaction, the other country should 

a)  an  enterprise  of  a  Contracting  State  participates  directly  or  indirectly  in  the  management,  control  or 
capital of an enterprise of the other Contracting State, or 
 b) the same persons participate directly or indirectly in the management, control or capital of an enterprise 
of a Contracting State and an enterprise of the other Contracting State,  
and  in  either  case  conditions  are  made  or  imposed  between  the  two  enterprises  in  their  commercial  or 
financial  relations  which  differ  from  those  which  would  be  made  between  independent  enterprises,  then 
any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of 
those  conditions  have  not  so  accrued,  may  be  included  in  the  profits  of  that  enterprise  and  taxed 
accordingly.” 

123 

 
 
 
 
 
 
 
 
reduce, under certain conditions, the profit attributed to the other side of the transaction otherwise 
the  same  profit  will  be  taxed  twice.  The  competent  authorities  of  the  Contracting  States  are,  if 
necessary, to consult with each other in determining the adjustment. 

Over  time  the  OECD  has  developed  the  OECD  Transfer  Pricing  Guidelines  for Multinational 
Enterprises and Tax Administrations which provide guidance on the meaning of the arm’s length 
principle, primarily for OECD member countries to use in resolving transfer pricing disputes under 
tax  treaties.  Those  guidelines  have  been  developed  as  a  non-binding  instrument  with  the  aim  to 
assist MNEs and tax authorities in finding solutions to transfer pricing cases that minimise conflicts 
and limit litigation. The OECD guidelines were first published in 1995 and are regularly updated.  

For  its  part,  the  UN  has  elaborated  the  United  Nations  Practical  Manual  on  Transfer  Pricing 
whose aim is to contribute to a common understanding of how the arm’s length principle is to be 
applied under article 9 of the UN Model Convention in order to avoid double taxation and prevent 
or resolve transfer pricing disputes.  

Article 9 (Associated  Enterprises) of the UN and OECD Models  sets  out the basic  conditions  for 
transfer  pricing  adjustments  and  for  corresponding  adjustments  where  economic  double  taxation 
arises. Although article 9 endorses the application of the arm’s length principle it does not set out 
detailed  transfer  pricing  rules.  The  article  is  not  considered  to  create  a  domestic  transfer  pricing 
regime if this does not already exist in a particular country. In fact, it is generally understood that 
article  9  is  not  “self-executing”  as  to  domestic  application—it  does  not  create  a  transfer  pricing 
regime in a country where such a regime does not already exist. 

Thus, jurisdictions normally have in place domestic legislation that ensures some harmonisation on 
basic  principles,  in  accordance  with  the  arm’s  length  standard,  even  if  the  application  is  not 
identical  around  the  globe.  Further,  jurisdictions  may  have  in  place  their  own  administrative 
guidance and/or regulations to better explain the national provisions and provide guidance on their 
interpretation. 

In practice, domestic legislations and tax treaty principles co-exist. While domestic provisions grant 
tax  administrations  the  power  to  tax,  bilateral  tax  treaties  (which  usually  include  provisions 
regarding the arm’s length principle) limit the jurisdictions’ right to tax, in order to prevent or solve 
situations of double taxation vis-à-vis other jurisdictions. 

4.  What are the issues related to the application of the transfer pricing rules? 

While  it  is  relatively  easy  to  describe  the  arm’s  length  principle,  the  practical  application  of  the 
principle is a complex task.  

The  current  transfer  pricing  rules  are  inherently  complex  and  highly  subjective.  The  OECD 
guidelines themselves caution that “transfer pricing is not an exact science” and “that the choice of 

124 

 
 
 
 
 
 
methodology  for  establishing  the arm’s length transfer  pricing  will  often  not  be  unambiguously 
clear”. 

The complexity of the transfer pricing rules gives rise to a number of problems: 

A)  Profit shifting and tax avoidance84: transfer prices are easily manipulated to shift profit and be 

used in the context of aggressive tax planning schemes.  

B)  Litigation85 and double taxation: transfer pricing is more subjective than other areas of direct 
and  indirect  taxation  and,  for  this  reason,  sensitive  to  disputes.  In  addition,  it  should  be 
recognised that tax administrations do not always share a common interest. This is because, to 
prevent double taxation, a well-founded primary (upward) adjustment by one tax administration 
should  be  followed  by  a  corresponding  (downward)  adjustment  by  the  other.  This  implies that 
the  second  tax  administration  would  have  to  reduce  its  tax  base  accordingly,  which  is  most 
probably an option that a tax administration would preferably avoid taking, especially when the 
interpretation of the transfer pricing rules differs.   

In  the  European  Union,  the  problems  related  to  transfer  pricing  described  above  are  exacerbated 
because although there is an internal market, national tax systems are not harmonised. In addition, 
the  status  and  role  of  the  OECD  Guidelines  differ  from  Member  State  to  Member  State 
creating different interpretations of the arm’s length. 

5.  What is the state of play of transfer pricing rules in the EU?  

84 At the beginning of the BEPS project in 2013, OECD estimates that the scale of global corporate income 
tax  revenue  losses  due  to  BEPS  practices  could  be  between  USD  100  to  240  billion  annually  (see 
https://www.oecd.org/tax/beps-project-explanatory-statement-9789264263437-en.htm);  Transfer  Pricing 
manipulation was identified as one of the major BEPS practices.  
85  The  OECD  official  statistics  show  that  at  the  end  of  2021  the  number  the  pending  Mutual  agreement 
procedures (MAPs) activated to resolve double taxation arising from Transfer Pricing cases has increased 
by  33%  compared  to  the  2016  (the  MAP  inventory  at  the  end  2021  results  to  be  6000  against  the  4500 
pending  MAP  cases  at 
statistics  are  available  at: 
https://www.oecd.org/tax/dispute/mutual-agreement-procedure-statistics-2021-inventory-
trends.htm#tpcases  
Also the EU official statics on MAPs under the Arbitration Convention show an increase of transfer pricing 
disputes  between  Member  States  of  17%  compared  to  the  previous  year  (tot  MAP  inventory  of  Member 
States at the end of 2020 is equal to 2213 while tot MAP inventory of the Member States at the end of 2019 
is  equal  to  1889).  EU  MAP  statistics  are  available  here:  https://taxation-customs.ec.europa.eu/taxation-
1/statistics-apas-and-maps-eu_en  

the  end  of  2016).  OECD  MAP 

125 

 
 
 
 
 
 
 
 
 
 
The table below provides a detailed overview of the state of play of transfer pricing rules in the EU 
Member States. The situation can be summarised as follows:  

a)  EU law: Transfer pricing rules are not harmonised at EU level through legislative acts.  

The Commission has currently no policy initiative86 in place in the area of transfer pricing 
which would allow for reaching a common approach.  
In the past, the Commission dealt with transfer pricing issues through the work of the Joint 
Transfer Pricing Forum (JTPF), an expert group set up by the Commission in 2002 whose 
mandate expired in March 2019 and was not renewed. 

b)  Domestic legislation: all Member States have implemented the arm’s length principle into 
their  domestic  legislation.  The  overwhelming  majority  of  Member  States  have  in  place  a 
“short  provision”  that  merely  reflects  art.  9  of  the  OECD  model  tax  convention.  Still, 
domestic  legislation  of  Member  States  shows  relevant  differences  in  the  definition  of 
associated enterprises and in particular, in the notion of “control” which is normally the pre-
condition to apply transfer pricing. For example, the German transfer pricing rule applies to 
intercompany transactions where there is a substantial shareholder > 25% while in France or 
Belgium,  the  transfer  pricing  rule  only  applies  where  there  is  a  substantial  shareholder  > 
50%.  There  are  also  differences  in  domestic  legislation  regarding  the  exclusions  from  the 
scope  of  the  rule.  For  example,  the  newly  adopted  transfer  pricing  legislation  in  Malta 
excludes in  any case from  the scope of the rule the SMEs  as defined by the EU State Aid 
Regulations while such exclusion is not provided in the Italian legislation and many others.  

c)  OECD  guidelines:  Only  23  out  of  27  EU  Member  States  are  also  OECD  members 
(Bulgaria,  Romania,  Malta  and  Cyprus  are  not  OECD  members)  and  therefore  are 
committed to follow the OECD principles and the OECD guidelines to  interpret the arm’s 
length principle. Still the status and role of the OECD guidelines differ from Member State 
to  Member  State  even  among  those  who  are  OECD  members.  For  example,  one  group  of 
Member States (Spain, Italy and Germany) makes direct reference to the OECD guidelines 
in  their  national  provisions  recognising  the  OECD  guidelines  as  a  source  of  interpretation 
not  only  for  article  9  of  the  tax  treaties  but  also  for  domestic  legislation  as  long  as  the 
guidelines  do  not  conflict  with  specific  domestic  regulations.  Another  group  of  Member 
States  (France,  The  Netherlands,  Croatia  and  others)  has  not  explicitly  implemented  the 

86 An ongoing EU soft-law initiative related to TP is ETACA (European Trust and Cooperation approach). 
ETACA is an EU program that aims to increase  tax certainty by bringing together, on  a voluntary basis, 
Member State tax administrations to perform a multilateral risk assessment of the transfer pricing policy of 
MNEs operating within the internal market.   

126 

 
 
 
 
 
 
 
 
 
OECD  guidelines  into  their  internal  legislation;  they  report  to  follow  the  guidelines  in 
practice, but the legal status of the Guidelines is unclear. Another group (Estonia, Hungary) 
explicitly  reports  that  the  OECD  guidelines  are  not  recognised  as  legally  binding  but  that 
their  administrative  regulations  are  based  on  the  same  principles  contained  in  the  OECD 
Transfer  Pricing  Guidelines.  Another  element  that  remains  unclear  is  whether  Member 
States adopt a dynamic (which seems the case for Austria and Denmark) or a static (which 
seems  the  case  for  Germany)  approach  to  the  OECD  guidelines,  i.e.,  whether  they  make 
reference to the last version or rather a specific version of the OECD guidelines (taking in 
consideration  that  the  OECD  guidelines  were  first  published  in  1995  and  then  updated 
several times ever since).   

The table below summarises the state of play of the implementation of the arm’s length principle 
and OECD guidelines in domestic legislation of EU Member States.  

The information has been collected from the public OECD TP country profile and has been cross-
checked  with  the  information  contained  in  the  EU  TP  country  profile  elaborated  by  the  Joint 
Transfer Pricing Forum. 

Member 
State 

Is the arm's length principle 
implemented in the 
domestic legislation? 

What is the role of the OECD 
Guidelines? 

The  OECD  Guidelines  serve  as  a  tool 
for interpretation of Austrian tax treaties 
(see  Article  31  paragraph  3  sub-
paragraph  b  of  the  Vienna  Convention 
on the Law of Treaties). The role of the 
OECD  Transfer  Pricing  Guidelines  is 
explicitly  mentioned  and  explained  in 
the Austrian Transfer Pricing Guidelines 
2021 (“Austrian TPG 2021”; the official 
regulation 
tax 
administration  regarding  the  application  
of the ALP under Austrian tax treaties). 

the  Austrian 

of 

Austria 

YES 

Section 6 paragraph 6 of the 
Austrian Income Tax Act 
(“ITA”) 

127 

 
 
 
 
 
 
 
 
 
Belgium 

YES 

Art. 185, §2, BITC 

Belgium legislation incorporates specific 
guidance  for  the  interpretation  of  the 
mentioned  articles  with  reference  to  the 
OECD Transfer Pricing Guidelines. The 
2020  circular 
letter  comments  on 
Chapters  I,  II,  III,  VI,  VII,  VIII  and  IX 
of  the  2017  OECD  Transfer  Pricing 
Guidelines. It also includes guidance on 
financial 
the 
application  of  the  Authorised  OECD 
Approach  (AOA)  on  the  attribution  of 
profits  to  Permanent  Establishments  is 
also  described.  Where  useful  and 
appropriate, 
administration's 
the 
preference is set out. 

transactions.  Finally, 

Bulgaria 

YES 

Corporate Income Tax Act, 
Chapter 4, Art. 15 

Cyprus 

YES 

Income Tax Law (Art. 33 Law 
No.118(I)/2002)  

Croatia 

YES 

Profit Tax Act, art13 

Czech 
Republic  

YES 

The Czech Income Tax Act 
586/1992 Coll., Section 23 
para 7  

128 

in 

the  TPG 

Although  there  is  no  specific  reference 
to 
the  Bulgarian  TP 
legislation,  Bulgaria  generally  follows 
them.  However, 
there  are  certain 
differences  (e.g.  there  is  a  hierarchy  of 
the  methods  under 
the  Bulgarian 
legislation) 

there 

Altough 
legal 
provision,  in  practice  OECD  Transfer 
Pricing Guidelines are followed. 

is  no  specific 

Even  if  there  is  no  direct  reference  in 
Croatian  legislation  (in  Profit  Tax  Act 
and Profit Tax Ordinance), the Croatian 
Tax  Administration  uses  the  OECD 
Transfer Pricing Guidelines in practice 

into 

the  Czech 

The  OECD  TP  Guidelines  are  not 
implemented 
tax 
legislation directly, but in the Guideline 
GFD  D-22  (which  provides  for  a 
uniform procedure for the application of 
certain  provisions  of  the  Czech  Income 

 
 
 
 
 
 
 
 
 
Tax Act) there is the recommendation to 
use TPG. 

Denmark 

YES 

The arm’s length principle is 
governed by the Tax 
Assessment Act 
(Ligningsloven), Section 2. 

The  Danish  Tax  Assessment  Act, 
Section 2, includes  a direct  reference to 
the TPG in the explanatory memoranda. 
In  Denmark  the  arm’s  length  provision 
is  interpreted  according  to  the  arm’s 
length principle contained and described 
in the OECD TPG. 

Estonia 

YES 

Subsection 50 (4) of the 
Income Tax Act  

Finland 

YES 

Session 31 of the Assessment 
Procedure  Act 

129 

to  Article  20  of 

The TPG have no legal status within the 
Estonian  tax  system.  However,  they 
have  been  translated  into  Estonian  and, 
according 
the 
Regulation  no.  53  (Transfer  Pricing 
Regulation)  drafted  by  MoF  (in  force 
since  1.01.2007), 
tax 
administrations  are  encouraged  to  use 
the TPG for those situations not covered 
by  the  Transfer  Pricing  Regulation,  as 
far as the guidance in the TPG is not in 
contradiction with it. 

taxpayers  and 

The OECD Transfer Pricing Guidelines 
are  a  source  of  interpretation  as  far  as 
the tax treaties and domestic legislation 
concerned. 
are 
The  OECD  TPG  have  been  referred  to 
in  the  Government  Bill  (107/2006  vp.) 
updating transfer pricing legislation and 
pricing 
transfer 
introducing 
documentation 
requirements  as  an 
interpretation  guidance  in  applying  the 
(Act  
domestic 
on  Assessment  Procedure  §  31).  The 
reference  has  been  made  also  in  the 
vp.) 
Government  Bill 

legislation 

(142/2016 

 
 
 
 
 
 
France 

YES 

Article 57 of the General Tax 
Code (Code général des 
Impôts) is the equivalent in 
domestic law of Article 9 of 
the OECD Model Tax 
Convention. 

updating transfer pricing documentation  
requirements  and  in  the  Government 
Bill  (188/2021  vp.)  updating  transfer 
pricing 
the 
Supreme  Administrative  Court  has 
an 
to  OECD  TPG 
referred 
as 
interpretation 
several 
in 
source 
decisions (e.g. KHO 2013:36). 

legislation.  In  addition, 

to 

Although  the  OECD  Transfer  Pricing 
Guidelines  are  not  prescriptive  under 
French  domestic 
law  or  regulation, 
French  administrative  doctrine  makes 
express  references 
them.  French 
domestic  administrative  doctrine  refers 
to 
the  OECD  Transfer  Pricing 
Guidelines for the arm’s length principle 
for 
and 
price 
determining 
between 
this 
principle 

related  parties  under 

the  methods  used 

transaction 

the 

for 

Germany 

YES 

Section 1 External Tax 
Relations Act 
(Außensteuergesetz) 

Greece 

YES 

Income Tax Code 
(L.4172/2013, Article 50) 

The External  Tax Relations Act  aims at 
allowing  to  apply  the  OECD  Transfer 
Pricing  Guidelines  under  German  law. 
Furthermore, 
the  German  Federal 
Ministry  of  Finance’s  circular  on 
transfer  pricing  not  only  refers  to  the 
OECD  Transfer  Pricing  Guidelines  but 
includes them as an annex 

The  provisions  of  Income  Tax  Code 
with  regards  to  Transfer  Pricing  are 
applied and interpreted consistently with 
OECD general principles and the OECD 
Transfer Pricing Guidelines. The OECD 
TPG are also followed during MAPs and 
APAs procedures 

130 

 
 
 
 
 
 
Hungary 

YES 

Section 18 of the Act LXXXI 
of 1996 on Corporate Tax and 
Dividend Tax. 

The  OECD  TP  Guidelines  are  not 
legally binding in Hungary, however the 
Hungarian  TP  regulations  are  based  on 
the  OECD  Transfer  Pricing  Guidelines.  
Section 31, paragraph 2, subparagraph b 
of the Act LXXXI of 1996 on Corporate 
Tax 
contains 
and  Dividend  Tax 
reference to the OECD TPG. 

Ireland 

YES 

Section 835C of the Taxes 
Consolidation Act 1997 (as 
substituted by section 27 of the 
Finance Act 2019).  

[ SMEs are out the scope]  

- 

- 

transfer  pricing 
in  accordance  with 

rules  are 
Ireland’s 
construed 
the 
OECD’s Transfer Pricing Guidelines for 
and  Tax 
Multinational  Enterprises 
Administrations published by the OECD 
on 10 July  2017 (“TPG”) supplemented 
by 
for  Tax 
the  Guidance 
Administrations  on  the  Application  of 
the  Approach 
to  Hard-to-Value 
Intangibles,  -  the  Revised  Guidance  on 
the  Application  of  the  Transactional 
-  Any 
Profit  Split  Method,  and 
additional  guidance  published  by  the 
OECD on or after the date of the passing 
the  Finance  Act  2019  (i.e.,  22 
of 
December  2019)  as  the  Minister  for 
Finance may designate by order. 

Italy 

YES 

Income Tax Code (approved 
by Presidential Decree No. 
917 of 22 December 1986): 
Art. 110 para. 7 as recently 
updated in June 2017. 

The  Ministerial  Decree  dated  14  May 
2018, in setting out the general guidance 
for  the  proper  application  of  the  arm’s 
length  principle  established  by  law  in 
Article 110, paragraph 7, of the Income 
Tax  Code,  makes  explicit  reference  to 
the  OECD  Transfer  Pricing  Guidelines 
and to the OECD Final Report on BEPS 
Actions  8-10  as  well.  See  Preamble  of 
the Ministerial Decree. 

131 

 
 
 
 
 
 
 
as  best  practices 

The  OECD  Transfer  Pricing  Guidelines 
and 
are  used 
recommendations  on  dealing  with  the 
following transfer pricing issues:  - How 
to apply transfer pricing methods; - How 
to  make  a  functional  analysis  and 
comparable  benchmark;  -  To  promote 
the  cooperation  between  taxpayers  and 
tax  administrations  and  to  avoid  double 
taxation;  -  To  justify  certain  controlled 
transactions or commercial relations. 

The  Lithuanian  TP  rules  are  mainly  in-
line  with  the  OECD  Transfer  Pricing 
Guidelines  (‘OECD  TPG’).  Moreover, 
Lithuanian TP Rules recommend the use 
the 
the  OECD  TPG 
of 
provisions  do  not 
the 
provisions of the TP Rules. 

insofar  as 
contradict 

Latvia 

YES 

Corporate income tax law, 
Section 4 Paragraph 2 
Subparagraph 2-e  

Lithuania 

YES 

Clause 3 of the Rules for 
Implementation of paragraph 2 
of Article 40 of the Republic 
of Lithuania Law on Corporate 
Income Tax and paragraph 2 
of Article 15 of the Republic 
of Lithuania Law on Personal 
Income Tax approved by the 
Minister of Finance of the 
Republic of Lithuania (the TP 
Rules) 

Luxembourg 

YES 

Art. 56 and 56bis of the 
modified law as of 4th 
December 1967 concerning 
income tax (“LITL”). 

The  OECD  TPG  are  the  base  reference 
in  domestic  legislation.  They  constitute 
the framework for any TP analysis. 

Malta 

YES 

Article 5(6) of the Income Tax 
Management  

In  the  absence  of  specific  domestic 
legislation  regarding  transfer  pricing, 
reference is made to the OECD Transfer 
Pricing  Guidelines. These, however, are 
not binding 

132 

 
 
 
 
 
 
 
 
The 
Netherlands 

YES 

Art. 8b CIT act 

Poland 

YES 

Article 11c para. 1, 11j para. 1 
of  the  Corporate  Income  Tax 
act (CIT act) 

Article 23o para. 1, 23v para. 1 
of the Personal Income Tax act 
(PIT act)  

Portugal 

YES 

Article 63 of the Corporate 
Income Tax Code 

The OECD Transfer Pricing Guidelines 
(“TPG”)  are  not  incorporated  in  Dutch 
legislation, however based on the Dutch 
Transfer  Pricing  Decree,  the  TPG  are 
considered  as  internationally  accepted 
guidance  providing  explanation  and 
clarification  of  the  (application  of  the) 
arm’s length principle. 

The  OECD  Transfer  Pricing  Guidelines 
are  not  part  of  the  Polish  law,  however 
they  are  used  as  an  explanatory 
instrument.  Also  in  accordance  with 
regulations contained in the PIT and CIT 
act,  the  Minister  of  Finance  act  on  TP 
assessments  procedure  and  Minister  of 
Finance  act  on  TP  documentation  take 
into account mainly the OECD Transfer 
Pricing Guidelines 

in 

The  OECD  Transfer  Pricing  Guidelines 
are referred in the Portuguese legislation 
as  a  source  of  guidance 
the 
application of the arm’s length principle. 
The  preamble  of  the  Ministerial  Order 
(Portaria)  n.º  268/2021,  of  the  26th  of 
November, 
the  OECD 
Transfer  Pricing  Guidelines  should  be 
taken in consideration in the application 
of  the  transfer  pricing  legal  framework 
and of the arm’s  length  principle, given 
the complexity of the issue, and the need 
to avoid double taxation and litigation. 

refers 

that 

Romania 

YES 

Tax Act, Section 11, para 4 
(art 11 alin. 4 cod fiscal)  

Ord 442/2016- TP File 

133 

in 

incorporates 
legislation 
Romanian 
guidance  for  the  interpretation  of  the 
articles 
the  Tax  Act  concerning 
transfer  pricing  with  reference  to  the 
OECD  Transfer  Pricing  Guidelines 
(TPG).  Also,  in  applying  the  Arm’s 
Length  Principle  Romanian  legislation 

 
 
 
 
 
 
has direct reference to the OECD TPG 

Slovak 
Republic 

YES 

Income Tax Act, Article 17, 
para 5 and Article 18, para 1 

The  OECD  Transfer  Pricing  Guidelines 
(TPG)  are  not 
legally  binding,  but 
acceptable as an explanatory instrument. 

Slovenia 

YES 

The Corporate Income Tax 
Act and the Rules on Transfer 
Prices (Translation Updated 
until 2016) 

by 

remuneration  based  on 

The  TPG  is  used  as  a  practical  tool  by 
tax 
and 
taxpayer 
the 
the 
administration 
(Financial 
Administration)  to  determine  the  arm’s 
length 
the 
relevant  law  in  the  field  of  transfer 
pricing,  that  is  the  Corporate  Income 
Tax  Act  and  the  Rules  on  Transfer 
Prices.  The  OECD  Transfer  Pricing 
Guidelines  (2010)  were  translated  into 
Slovene  language  and  published  on  the 
website  of  the  Ministry  of  Finance  and 
Financial Administration. 

Spain 

YES 

Corporate Income Tax Act, 
Art.18.1 (Ley 27/2014, 27 
November 2014) 

Sweden 

YES 

Section 14 para 19 of the 
Swedish Income Tax Act 
(1999:1229). 

The  OECD  TPG  are  recognised  by  the 
Preamble  of  the  Corporate  Income  Tax 
Act  as  a  source  of  interpretation  of  the 
internal  legislation  and  as  far  as  the 
Guidelines  do  not  conflict  with  the 
domestic regulations 

There  is  a  reference  to  the  OECD  TPG 
in  decisions  by  the  Supreme  Court  (RÅ 
1991  ref.  107  and  HFD  2016  ref.  45). 
Also,  in  the  preparatory  work  to  the 
transfer 
documentation 
legislation  a  reference  is  made  to  the 
transfer pricing methods described in the 
OECD TPG. 

pricing 

134 

 
 
 
 
 
 
135 

 
 
 
 
 
 
 
 
 
ANNEX 8: TERRITORIAL IMPACT ASSESSMENT – NECESSITY 
CHECK 

Background 

Territorial  impact  assessments  (TIA)  are  recommended  by  the  Regulatory  Scrutiny  Board  to  be 
conducted for any policy on the EU level  that is likely to  have relevant  territorially differentiated 
impacts  on  the  regions.  Deciding  whether  or  not  that  is  the  case  for  a  given  policy  or  legislative 
proposal  however is  not  always easy  as no policy will affect  all regions  throughout the European 
Union exactly to the same extent. It is thus necessary to determine, if there are relevant respectively 
significant variations in impacts. 

Necessity Check 

A meeting was held between DG REGIO, DG AGRI, and DG TAXUD on 14 December 2022 to 
discuss possible territorially differentiated impacts on the regions of the BEFIT proposal. Following 
this discussion TAXUD undertook to carry out a Territorial Impact Assessment Necessity Check. 

DG  TAXUD  carried  out  the  online  Territorial  Impact  Assessment  Necessity  Check  on  3  March 
2023 and the result of that check was that the initiative does not require a TIA. 

The  problem  and  its  consequences  that  this  initiative  aims  to  address  (complexity  and  high 
compliance costs) are spread across the Union evenly, indeed they are a product of the existing of 
many systems. The initiative itself will not impact regions differently. 

136