Changes from report parliamentary committee draft to report parliamentary committee draft

EXPLANATORY STATEMENT

Change 39

ChangedThe ‘Business in Europe: Framework for Income Taxation’ (BEFIT),(BEFIT) proposal introduces a common system for calculating the corporate tax base of large cross-border groups ofbusiness companiesgroups acrossin the EU and for the allocation ofallocating suchthese tax bases toamong eachthe membermembers of thesethe BEFIT groups.

Context

Change 40

ChangedThe BEFIT proposal -aims to further coordinate and harmonise the EU's corporate tax frameworkframework, -playing isa pivotalkey role in facilitating cross-border business and investment in the EU.investments. The proposal will reduce the costs andcosts, complexity of administrative and tax compliance for both businesses and tax authorities on the oneauthorities, hand,while andalso minimiselimiting the leewayopportunities for corporate tax avoidance on the other. Theavoidance. BEFIT proposal draws on two directivesprevious proposedproposals made by the European Commission in 2016. Namely, theThe Common Corporate Tax Base (CCTB) and the Common Consolidated Corporate Tax Base (CCCTB). These two directivesproposals containedoutlined a comprehensive packageset of new corporate tax rules for the calculation of a CCCTB base and the apportionment of this base according to a formula based on substance factors.factors reflecting real economic activities. Despite broad support from the European Parliament, civil societysociety, and businesses, thethese earlier proposals receivedsaw littlelimited discussionprogress in the CouncilCouncil, mainly due to theconcerns variedover their uneven impact across the proposals27 couldMember States and a perceived lack of flexibility. Since 2016, international corporate tax rules have hadchanged significantly. The OECD/G20 Inclusive Framework on BEPS, especially the 27agreement on Pillar II establishing a global minimum corporate tax rate, has set a new benchmark for tax coordination. These developments offer the EU a timely opportunity to revive discussions on a common corporate tax base and strengthen its internal alignment. At the same time, growing geopolitical tensions and the fragmentation of the global economy have made cross-border business more complex and unpredictable. In this context, corporate tax harmonisation within the EU is not just administrative efficiency, but a strategic necessity. A coordinated and stable tax framework is essential to support the Single Market and ensure policy coherence across Member States,States. Moreover, a transparent and consistent corporate tax system is vital for advancing the Capital Markets Union. It reduces regulatory disparities, removes investment barriers, and deepens financial and economic integration. Ultimately, BEFIT will enhance a certainfair lackand ofefficient flexibility.EU business environment while strengthening the fight against aggressive tax planning.

Change 41

RemovedNevertheless, the global tax discourse has evolved since 2016 and various reforms in corporate taxation have been introduced since then. In particular, the international negotiations on the OECD/G20 Inclusive Framework on BEPS for Pillars I and II, i.e. redistributing taxing rights and setting an effective minimum level of corporate tax, have outlined what a harmonised tax base might look like.

AddedThe Commission Proposal

RemovedThe proposal

AddedWith the BEFIT proposal, the Commission seeks to integrate these international developments into a new, unified set of rules to create a common corporate tax base across the EU. Unlike the CCCTB proposal, which used taxable profits as the starting point, BEFIT begins with consolidated financial accounts and then applies adjustments to derive a taxable base. A key feature of BEFIT is its flexibility. Member States retain the ability to apply tax incentives and adjustments to their share of the allocated tax base. However, these incentives are constrained by the 15% minimum effective tax rate established in Directive (EU) 2022/2523.

RemovedWith its BEFIT proposal, the Commission aims to integrate these advances into a new set of rules designed to create a common corporate tax base in the EU. The main difference with the CCCTB proposal - which proposed common rules to calculate the tax base based on taxable profits - is that the calculation of the BEFIT tax base starts from consolidated accounting, where adjustments are made to obtain a tax base. Important to note, is that the BEFIT proposal leaves greater room for manoeuver for Member States to apply tax incentives and other tax adjustments to the BEFIT proposal, regarding the tax base allocated to them. However, such incentives are linked to the minimum effective tax rate of 15% set out in Directive (EU) 2022/2523.

AddedBEFIT applies to large cross-border companies with an annual turnover of €750 million or more, forming the BEFIT groups. Smaller groups can voluntarily join and prepare consolidated accounts. Adjustments are then made to determine provisional tax results, including items like dividends, fines, excess interest, and corporation tax paid. The draft directive also includes common rules on amortisation, timing, and quantification. In particular, the BEFIT proposal introduces an apportionment rule for calculating the BEFIT base. The allocation to Member States will be based on the average share of the BEFIT base of each national BEFIT group member in the last three tax years, thus moving away from an allocation key based on the place of economic substance. However, this is proposed as a transitional rule until 2035.

RemovedBEFIT applies to large companies with an annual turnover of EUR 750 million or more, which form the so-called BEFIT groups. Smaller groups can join if they wish and prepare consolidated accounts. Adjustments are then made to determine the provisional tax results of the BEFIT group. These include the addition or deduction of items such as dividends, fines, excess interest payments, corporation tax already paid, etc., to bring the BEFIT tax base more in line with taxable profits. Furthermore, the draft directive provides for common rules on amortisation, timing and quantification. In particular, the BEFIT proposal includes an apportionment rule for the calculation of the BEFIT base. However, this is proposed as a transitional rule until 2035. The subsequent allocation to Member States will be based on the average share of the BEFIT base of each national BEFIT group member in the last three tax years, thus moving away from an allocation key based on the place of economic substance.

The proposal also contains innovative transfer pricing rules, which are to be maintained until the end of the transitional period:

Change 42

Changed For intra-group transactions, a risk assessment framework that defines low and high risk zones,zones;

Change 43

Changed For intra-group transactions outside the EU, a "traffic light system" with zones for low, medium and high risk, as far as low-risk distribution and contract manufacturing activities are concerned.concerned;

Finally, the BEFIT proposal outlines the administration of the BEFIT system, including the establishment of joint BEFIT teams for each BEFIT group, comprising representatives of the tax administrations of the Member States where the BEFIT group operates.

Change 44

ChangedThe mainMain adjustmentsAdjustments proposedProposed by the rapporteurRapporteur

Change 45

ChangedThe rapporteur supports the objectives of the BEFIT proposal and is convincedaffirms that further harmonisation of the corporate tax base is beneficial for the stability and competitiveness of the internal market, while safeguarding sustainable tax revenues for Member States. In addition,Fragmented thenational proposaltax willsystems makecurrently aact significantas contributionbarriers to reducingcross-border investment by increasing tax uncertainty, distorting competition, and raising compliance costs andfor administrativebusinesses. burdensBy aligning corporate tax rules across Member States, BEFIT will help remove these obstacles - making it easier for BEFIT companies to raise capital, operate and expand seamlessly across borders, and minimise their compliance costs and administrative burdens. It will also be an effective instrument for reducing opportunities foragainst tax evasion and avoidance.

To reinforce these objectives, the rapporteur proposes to:

Change 46

Changed Lower the annual revenue threshold of multinational enterprise groups after the transitional period currently outlined in the proposal, so that all large groups, as defined inunder the Accounting Directive (Directive 2013/34/EU), fall within the scope of the BEFIT proposal.BEFIT.

Change 47

Changed Slightly revise theAdapt interest limitation rules for BEFIT groups to reduce the distortiondistortions ofin the debt/equity ratio that can arise fromcaused over-relianceby onexcessive intra-group debt financing and to reduce the scope for taxcurb base erosion and profit shiftingshifting, throughwhich can occur as a result from excessive interest payments.payments

Change 48

Changed Introduce more robustStrengthen Controlled Foreign Company rules, the so-called CFC(CFC) rules for BEFIT groups to makeenhance themresilience moreagainst resilientprofit toshifting profitwithin shifting.BEFIT groups.

Change 49

Changed Define the rules onRefine depreciation in morerules detail,to asaddress the current proposal could lead to apotential reductionEUR in31 thebillion tax base of around EUR 31 billion,loss accordinghighlighted toin the Commission's impact assessment.

Change 50

Changed Limit tax incentives, despitewhile giving Member States greater flexibility in granting them. In particular, theStates' Rapporteurflexibility, wouldwith likea topreference favourfor input-based incentivesincentives, especially for R&D.

Change 51

Changed The main change proposed byReplace the rapporteurtransitional isapportionment therule introductionwith ofa anmaterial factor-based allocation formula based onafter material2035. factorsThe atmain thechange endproposed ofby the transition period. Such a formula providesrapporteur foris an equally weighted allocation betweenformula thebased factorson ofmaterial labour,factors—labour, wealthassets, and sales. Only a formula basedsales, onequally factorsweighted canand fullyapplied exploitafter the potentialtransition forperiod. harmonisationThis offormula thefully supports tax base harmonisation by eliminating the need to rely onfor transfer pricing for transactions within a BEFIT groupgroups, (reducedreducing compliance burden, bettercosts protectionand againstlimiting base erosion and profit shifting).shifting.