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1 February 20236 minute read

Global Tax Alert: DLA Piper provided comments on the Public Consultation on the BEFIT proposal

In October 2022, the European Commission (EC) launched a public consultation for the legislative proposal for a Directive “Business in Europe: Framework for Income Taxation” (BEFIT). The proposal impacts multinationals with cross-border operations with or within the European Union (EU) Member States. According to the EC, the BEFIT initiative aims to address the complexity and high costs that multinational businesses face in their European operations due to compliance with 27 different corporate tax systems. As a solution in line with its long-term vision to provide a fair and sustainable business environment the EC proposed the BEFIT initiative. BEFIT establishes a single corporate tax rulebook for the EU Member States based on a common tax base and the allocation of business profits between the Member States using formulary apportionment.

DLA Piper contributed to the public consultation by filling in the online questionnaire and taking a position on several legal and policy stances, which are summarized below.

General Comments

The EC is yet to determine whether an absence of common corporate tax frameworks results in distortion of investment decisions. Currently, there is indeed no common corporate tax system in the EU. The Members States maintain their corporate tax systems, which, however, due to the several directives adopted by and transposed into the national tax legislation of the Member States, provide for a harmonized framework for business taxation. Most tax regimes in the EU already align taxable income closely to financial statements. Apart from specific tax incentives and tax depreciation, there is already many commonalities among tax bases within the EU. The EC needs therefore to properly investigate and analyze whether the lack of a common corporate tax framework makes EU industries less competitive due to distortions in investment and financing decisions.

Technical Design Comments


The proposed scope includes multinational groups with consolidated global revenues exceeding EUR 750 million. The EC also considers broadening the scope to include small and medium enterprises (SMEs) that would be granted an option to opt-in to BEFIT to benefit from the common EU rules on the tax base and the allocation of profits. Whilst the exact scope of BEFIT is yet to be defined, in our view, a threshold with compulsory application with the possibility for groups/companies (including SMEs) below the threshold to opt in would best serve the interest of businesses operating in the EU. For consistency and ease of administration purposes, the threshold to be established and the definition of “group” of companies should follow the scoping rules of the Pillar One Amount A. Similarly, carveouts for specific sectors as well as for certain types of income in line with Pillar One and Pillar Two proposals should be considered. This approach would contribute to the simplification of compliance burden and, consequently, to the reduction of compliance costs.

Tax Base Calculation

The BEFIT proposal includes two options to calculate a common corporate tax base: (i) a determination of taxable base using financial accounts with limited tax adjustments as a starting point, and (ii) a comprehensive set of rules to design a corporate tax system with detailed rules for all aspects of profit and tax determination.

In our view, the approach starting from the financial statements – if well designed – would bring greater simplicity and ensure cost efficiency for businesses. From a practical standpoint, it may also be easier for 27 Member States to agree on rules based on this approach compared to lengthy negotiations over a comprehensive set of corporate tax rules. We also note that for consistency purposes, the adjustments to the financial accounts need to be made based on the applicable Anti-Tax Avoidance Directive and its amendments.

The formula for allocating taxable profits

The third building block of the BEFIT proposal focuses on the allocation of the tax base between Member States in which the group maintains a taxable presence. It proposes a set of allocation factors, e.g. tangible assets (excluding financial assets), labour (potentially split between personnel and salaries) and sales by destination, to apportion profits between tax jurisdictions. The consultation paper also mentions intangible assets (potentially based on research and development or marketing spent) as a fourth factor.

In our view, inclusion of intangible assets should be granted as these assets are often pivotal for value generation and competitive advantage of the business. Including intangible assets as an allocation factor may offset any potential externalities / unintended distortions between Member States, which, in turn, may help to reach a political consensus in the Council.

The allocation of profit to related entities outside the group

The fourth building block addresses transfer pricing rules and the application of an arm’s principle for cross-border transactions with group entities resident outside of the EU. It envisages a simplified approach to administer transfer pricing rules based on macroeconomic industry benchmarks and provides tax authorities with a risk approach to intra-group transactions.

In our view, the status quo for transfer pricing rules should be maintained to sustain and preserve tax certainty, considering that the OECD Transfer Pricing Guidelines provide a commonly accepted basis to price intra-group transactions. If established, the “safe harbors” should be complimentary and serve as additional risk assessment guidance.


The proposal does not articulate the methodology or the mechanics of tax compliance. In our view, one consolidated tax return and one central tax authority contact should be the points of attention for the EC to reduce compliance burden of taxpayers and the administrative costs for tax authorities. Furthermore, it will be important that the compliance rules of the regime will ensure good coordination among the relevant tax authorities to minimize conflicts and prevent any need for tax dispute resolutions.

Final Comments

In our submission, we emphasized that the announcement of any new legislation creates uncertainty, which may have an undesired discouraging effect on economic activity across the EU and inbound investment from non-EU stakeholders.

In our view, before introducing any new legislation, full and proper consideration and economic assessment must be given to the impacts of the proposal on corporate activity in the EU. We pointed out that new legislation should not make doing business in the EU more expensive, more burdensome from a compliance perspective and hamper EU business activity and ultimately create a disadvantage for EU businesses. BEFIT’s primary objective should be the reduction of compliance complexities while maintaining the allocation of profits based on the OECD principles. We believe that BEFIT’s implementation should be aligned with Pillar Two to avoid another set of tax rules (domestic rules, Pilar Two and BEFIT).

Multinationals with European operations should stay abreast of the BEFIT initiative. We will continue to monitor and further report on BEFIT-related developments.