The European Commission's BEFIT Proposal

We have submitted our comments to the public consultation by the European Commission on the proposal it will develop on Business in Europe - Framework for Income Taxation (BEFIT).

We strongly support the Commission’s longstanding view that the fairest and most efficient approach to taxation of business profits within the EU’s single market is by adopting a common corporate tax base together with formulary apportionment. Indeed, in our view this approach should be adopted worldwide.

Indeed, in our view this approach should be adopted worldwide, as the only effective way to reform international tax rules to ensure that multinational enterprises (MNEs) can be taxed ‘where economic activities occur and value is created’, as mandated by the G20 for the project on base erosion and profit shifting (BEPS) initiated by the OECD. Detailed rules have been formulated for implementation of both Pillars, and the Commission’s proposed Directive based on the rules for Pillar Two has now been agreed by the Council of the EU.

These developments have completely changed the context for action by the EU on business taxation. This should indeed provide a ‘source for inspiration’ for the BEFIT, as the consultation document states. Indeed, we would go further and suggest that the Commission should in principle base its detailed proposals on the rules developed for Pillars 1 and 2, e.g. on consolidated accounts, and the definitions of assets, employees and sales by destination. This would ensure that this EU initiative is firmly in line with the global consensus.

In particular:
(i) the tax base should be global consolidated accounts, adjusted for tax purposes as agreed for Pillar 1, excluding all state aids or tax expenditures such as non-refundable tax credits; non-EU-based MNEs should also submit global consolidated accounts, as well as a consolidation at the EU level;
(ii) the assets factor  should not include intangibles;
(iii) a simplified method should be developed to identify risks of profit-shifting outside the EU, but it should use a formulaic method, to complement the BEFIT applied within the EU;
(iv) administration should be through a 'one-stop shop' in a 'college' system involving representatives of all affected member states.

The Commission should be congratulated on its far-sightedness in identifying this objective, and should take heart from the progress now achieved. The time is now ripe to take a further decisive step forward, and for the EU to provide the leadership needed to complete the long-overdue reform of international corporate tax rules, both within the EU and more widely.