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Friday, 13 October 2023

BEFIT, towards a common corporate tax framework in the EU ?

Gauthier Mary

Gauthier Mary

Senior Associate
Maxime Grosjean

Maxime Grosjean

Senior Associate

BEFIT stands for “Business in Europe: Framework for Income Taxation” and is the object of a draft EU directive proposed by the European Commission on 12 September 2023 (the “Draft Directive”). The stated aim of the Draft Directive is to reduce the tax compliance costs of large groups by proposing a unified and streamlined approach in the determination of the tax base of their EU companies.


The Draft Directive is based on the observation by the Commission that large groups operating in the EU face a competitive disadvantage linked to the complexity of navigating in the national tax systems of each single EU country in which they operate. This complexity creates tax compliance costs that can discourage cross-border investments within the EU.

The Draft Directive intends to create a EU consolidated tax base for large groups – but also smaller groups on a voluntary basis – operating in the EU. The approach of the European Commission is to determine the tax base of each group member, then to consolidate them at EU level before allocating this consolidated tax base among the group members.

By harmonizing and consolidating tax calculations at EU level, the Draft Directive is a step forward to a common corporate tax framework in the EU. In this context, the Draft Directive replaces proposals of the Commission on a Common Corporate Tax Base and a Common Consolidated Corporate Tax Base.

In its current form, the Draft Directive provides for an implementation by Member States by 1 January 2028 in view of an application as from 1 July 2028. 

We have highlighted below the main features of the Draft Directive.


The BEFIT is designed to apply to qualifying EU companies or permanent establishments of certain large groups.

The scope of the BEFIT is largely inspired by the Pillar II Directive. It applies to groups which prepare consolidated financial statements and have annual combined revenues EUR 750 million in at least two of the last four fiscal years. The notion of group refers to a collection of entities related through ownership and control as defined by acceptable accounting standards for the preparation of consolidated financial statements.

Based on the Draft Directive, the BEFIT regime should be mandatory for group members of a large group based in the EU. EU companies (or permanent establishments) of a large group headquartered outside of the EU, should also be subject to the BEFIT but only to the extent that they meet specific revenue criteria.

In addition, other groups should be able to opt in the BEFIT regime for their EU-based group members provided they prepare consolidated financial statements. The group would then be bound for a renewable five-year period.

Not all members of the group would fall under the scope of the Draft Directive. In order to qualify for the regime of the Draft Directive, a group member should meet certain conditions, in terms of legal form, taxation, accounting regime and level of detention.  

Determination of the tax base

The Draft Directive introduces a set of fundamental principles for the determination of the tax base of the members of the BEFIT group. This would be done in three main steps:

Step 1  - Calculation of a standardized tax base at the level of each qualifying member of the BEFIT group

The tax base computation is the set of rules defining the uniform tax base for each qualifying group member. Similar to Pillar II, the starting point is the accounting result of the group member based on accounting standards used for the preparation of consolidated financial statements but before any consolidation adjustment for eliminating intra-group transactions. This profit is subject to certain adjustments detailed in the Draft Directive. Among those, the profit is reduced by 95% of dividends and capital gains generated by participations in which the group member has held, at the time of the distribution / disposal, an interest of more than 10% for more than one year.  

Step 2 - Consolidation of the tax bases of all group members into a single, unified tax base.

The so-called BEFIT tax base is the aggregation of the tax base of all group members as defined under step 1 above. If the result is positive, it will be allocated under group members (see step 3). If the result is negative, it will be carried forward and offset against the next positive BEFIT tax base. As a result, the BEFIT allows groups to offset losses across borders.

Step 3: Allocation of consolidation tax base among group members.

The share of each group member in the consolidated tax base of a given year would correspond to a ratio between (i) the average of the taxable result of the group member for the three previous fiscal years and (ii) the sum of the average of the taxable result of all group members for the three previous fiscal years.

This allocation method is transitional and would apply for a seven-year period, i.e. from 01.07.2028 – expected entry into force of the Directive – until 30.06.2035. The European Commission would be required, by the end of third year of the transition period, to proceed with a comprehensive review of the allocation rule described above and to prepare a study on its potential replacement by a formulary apportionment based on factors to be proposed by the Commission.

Once the allocation is done, each group member would then be subject to tax on its share in the consolidated tax base in its country of residence. Member States remain free to further apply any deductions, tax incentives, or base increases to their allocated parts, without other restrictions than the respect of the Pillar II Directive.


Administrative aspects

The Draft Directive would create administrative obligations for the so-called filing entity and for each group member individually.

The filing entity is either the ultimate parent entity for an EU group or an EU group member appointed by the group for non-EU group. The filing entity is required to file the BEFIT information return on a yearly basis with the tax authorities of its State of residence (or situation of permanent establishment). The return includes information on the BEFIT group, the computation of the BEFIT tax base and its allocation to the group members.

The submission of the BEFIT information return would entail the creation of a BEFIT Team, composed of one or more representatives of each relevant tax administration of Member States in which the BEFIT group operates. The team is in charge of examining the completeness and accuracy of the information filed by the filing entity.

Each group member is then required to file an individual tax return in its Member State of residence (or situation of permanent establishment). Members of the same BEFIT group which are resident for tax purposes or situated in the form of a permanent establishment in the same Member State may choose to file one combined individual tax return in that Member State.

Gauthier Mary

Gauthier Mary

Senior Associate
Maxime Grosjean

Maxime Grosjean

Senior Associate
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