COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE 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

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   EUROPEAN COMMISSION  Strasbourg, 12.9.2023  SWD(2023) 309 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE 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) 308 final}  
 
 
Executive Summary 

Impact  assessment  report  accompanying  the  Proposal  for  a  Council  Directive  on 
Business  in  Europe:  Framework  for  Income  Taxation  (BEFIT)  and  the  Proposal  for  a 
Council Directive on Transfer Pricing 
A. Need for action 
What is the problem and why is it a problem at EU level? 
As the EU celebrates 30 years of the internal market, businesses are still faced with different 
national  corporate  income  tax  systems.  Beyond  corporate  tax  rates  and  incentives,  each 
national system has divergent features. Businesses operating across the EU face disparate tax 
rules,  practices,  interpretations  and  administrative  requirements  as  well  as  interactions 
between the different systems and a bilateral approach to allocating taxing rights and income 
between  the  Member  States.  It  follows  that  tax  liability  computations  and  the  required 
resources to comply with tax obligations tend to vary from one Member State to another. 

This gives rise to high complexity and an uneven playing field for businesses operating in the 
internal market. It results in high tax compliance burdens for EU businesses, and it acts as a 
barrier  to  expanding  across  borders.  The  differences  in  tax  treatment  can  distort  investment 
decisions and can lead to tax uncertainty and disputes, while this may not be necessary.  

These  issues  are  particularly  important  at  EU  level  because  the  EU  has  a  highly  integrated 
internal market. 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,  disparate 
corporate  tax  requirements  remain  an  obstacle.  In  an  increasingly  digitalised  and  integrated 
European  economy,  where  many  businesses  are  active  across  borders,  the  internal  market 
cannot achieve its full potential without addressing these problems at EU level.  

What should be achieved? 
The general objectives of the initiative are: (i) to simplify tax rules for businesses in the EU; 
(ii)  to  stimulate  growth  and  investment  in  the  EU;  (iii)  to  ensure  fair  and  sustainable  tax 
revenues for Member States. 

To achieve such general objectives, the following specific objectives should be attained: (i) to 
reduce compliance costs for EU businesses; (ii) to encourage cross-border expansion; (iii) to 
contribute to reducing distortions that influence business decisions and thereby ensure a level 
playing field; (iv) to reduce the risk of double and over taxation and tax disputes; and (v) to 
increase tax certainty and fairness for business.  

What is the value added of action at the EU level (subsidiarity)?  
The problems that the initiative will address are common to all Member States and cannot be 
effectively  addressed  by  disparate  actions  at  national  level.  As  the  problems  result  from  the 
fragmentation and diversity of national systems, national uncoordinated measures might have 
undesirable  implications,  by  adding  further  complexity.  Bilateral  approaches  will  also  be 
limited,  especially for  groups  that  operate in more  than  two Member  States.  In  this  context, 
only an EU-wide initiative providing for a common set of rules would be effective.   

Since the problems are primarily of a cross-border nature, they can only be tackled by laying 
down legislation at EU level. The expected decrease in compliance costs and tax uncertainty 
will  in  turn  foster  investment  as  well  as  cross-border  expansion  in  the  EU.  Businesses 
operating  in  different  Member  States  will  be  able  to  fully  maximize  the  freedom  of 
establishment  and  the  free  movement  of  capital  without  being  hindered  by  unnecessary  tax 
related  obstacles.  This  initiative,  when  undertaken  through  EU  law,  therefore  includes 
elements which add value in line with the subsidiarity principle. A common approach for all 
Member States would have the highest chances of achieving the intended objectives.  

B. Solutions  
What are the various options to achieve the objectives? Is there a preferred option or 
not? If not, why?  
The  objectives  can  be  achieved  through  an  initiative consisting  of  two  legal  acts  addressing 

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the  current  challenges  related  to  corporate  taxation  of  groups  of  companies  in  the  internal 
market. The first act will lay down a common set of rules for computing the tax base of large 
groups  of  companies  in  the  EU,  while  the  second  will  put  forward  a  common  approach  to 
transfer pricing for Member States. This initiative is analysed in the impact assessment report:  

In brief, a new set of simplified tax  rules, closely aligned with the principles of Pillar 2, for 
computing the tax base of companies in  large groups will replace 27  disparate corporate tax 
systems for the taxpayers that will fall within its scope. Financial accounting statements will 
be used as a starting point for computing  the corporate tax base of the group in the EU and 
then allocating such aggregated base to its members across Member States. 

A  common  approach  to  transfer  pricing  will  ensure  consistency  in  the  way  Member  States 
treat  transactions  between  associated  enterprises,  thereby  reducing  profit  shifting  and 
increasing tax certainty and transparency.  

The report identifies different policy options and assesses specifically three combinations of 
these options. 

Version  1  -  “Comprehensive”:  this  version  would  propose  rules  that  are  mandatory  to  all 
taxpayers,  and  it  would  involve  the  highest  degree  of  harmonisation  as  well  as  immediate 
application. This combination of options would ensure the broadest scope possible and, as a 
result, the most extensive simplification for EU businesses and Member State tax authorities, 
considering that it would replace current national rules on group taxation in the EU.  

Version 2 - “Light”: this version would propose rules that are optional with the least degree 
of  harmonisation  and  planned  for  gradual  application.  This  combination  of  options  would 
bring  along  some  changes  to  the  status  quo,  but  these  would  be  narrower  in  scope,  less 
comprehensive, and with provision for gradual application. 

Version  3  -  “Composite”  –  the  preferred  option:  this  is  a  compilation  of  features  of 
mandatory  harmonisation  and  gradual  application.  It  provides  for  a  hybrid  approach  which 
would involve common and mandatory rules targeted at large groups that are most likely to 
have cross-border structures and could be expected to benefit the most from the simplification 
that the system offers. Transfer  pricing  rules are harmonised  in the form of principles-based 
legislation and set the framework for future coordination among Member States in the field. 
Version  3  demonstrates  efficiency,  as  its  limited  mandatory  scope  is  delineated  to  include 
solely those groups who can mostly benefit from the common rules. Furthermore, it envisages 
a  transition  rule  for  allocating  the  tax  base  of  the  group  that  builds  on  the  average  of  the 
taxable  results  in  the  previous  three  fiscal  years  and,  in  this  way,  it  ensures  stability  in  tax 
revenues at the national level. It also includes a review mechanism which could pave the way 
towards a permanent allocation method, possibly based on formulary apportionment. 

C. Impacts of the preferred option  
What are the benefits of the preferred option? 
The impact assessment sets out the positive effects for businesses and the economy in the EU 
as a result of  potential reductions of current tax compliance costs for cross-border operating 
firms, cross-border loss offsetting, harmonised tax base rules, such as depreciation rates, and 
allocation of a common tax base. The impact assessment includes the macro-economic impact 
of the preferred option on GDP and tax revenues in the EU. 

What are the costs of the preferred option?  
Costs cannot be estimated with any precision because the initiative does not have a precedent 
that  we  can  refer  to.  Furthermore,  there  is  no  dedicated  data  that  one  can  reliably  use  to 
produce very concrete estimates. The impact assessment report attempts to describe some of 
the possible costs.  

For  large  groups,  the  following  costs  are  expected  when  implementing  the  common 
framework for calculating their taxable results: short-term (one-off) adjustment costs, related 
to updating IT systems, and the training of company staff and tax administrations to adjust to 

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the  new  system;  and  ongoing  operational  costs  of  an  administrative  nature,  such  as  staff 
devoted to exchange of information among tax administrations. 

When  it  comes  to  transfer  pricing,  there  will  not  be  any  additional  costs  for  taxpayers  or 
national authorities, as there are currently large numbers of staff dealing with transfer pricing 
within  large  groups  and  tax  administrations.  There  would  be  an  initial  adjustment  cost  for 
training,  to  become  familiar  with  the  new  rules,  but  the  enhanced  clarity  and  EU-wide 
application of the new rules will eventually result in reduced compliance/administrative costs.  

What are the impacts on SMEs and competitiveness?  
SMEs: SME groups that file consolidated financial accounting statements will be eligible to 
opt in and thereby apply the common rules for computing the tax base. Considering that the 
rules will remain optional for SMEs,  we do not estimate adverse effects. Rather, SMEs will 
enjoy  the  benefit  of  choosing  the  simplest  and  most  cost-efficient  solution  based  on  their 
individual needs.  

Competitiveness:  the  initiative  is  expected  to  have  a  positive  impact  on  cost  and  price 
competitiveness  by  introducing  common  rules  and  a  common  approach.  All  elements  are 
based on simplifications of the current corporate tax rules which will reduce compliance costs 
for  business  operating  in  all  sectors  of  the  internal  market.  The  common  rules  are  also 
expected to establish a level playing field, break down barriers to cross-border expansion and 
improve  the  international  competitiveness  of  EU  businesses  vis-à-vis  non-EU  businesses, 
particularly those operating in other big markets.  

Will there be other significant impacts?  
The impact assessment also considered whether the initiative may have environmental or 
social impacts, or an impact on fundamental rights. No particular and direct environmental 
impact is expected. It is also not expected that there would be a significant social impact. 
However, freed resources may positively influence various areas, such as sustainable 
investments and employment decisions. The initiative should also not have an effect on 
fundamental rights, which are guaranteed, and personal data will be protected.  

Proportionality?  
The preferred option does not go beyond what is necessary to achieve the objectives and 
focuses on elements where the added value of EU action goes beyond what can be achieved 
by Member States alone. 

D. Follow-up  
When will the policy be reviewed? 
The evaluation of the initiative should assess the extent to which the outlined objectives have 
been  met  and  will  take  place  five  years  after  the  Directives  starts  to  apply.  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 
present 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. 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. 

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