EU Commission proposes a new tax framework

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Corporate taxpayers are expected to be significantly impacted by the proposed framework, in particular the new framework for income taxation for businesses in Europe

On 18 May 2021, the EU Commission published a Communication on Business Taxation for the 21st century (“the Communication”). The Communication sets out both a long-term and a short-term vision to support the EU’s recovery from the COVID-19 pandemic, creates a fair and sustainable EU tax business environment, and takes account of the ongoing work on international corporate tax reform at OECD level.

Corporate taxpayers are expected to be significantly impacted by the proposed framework, in particular the new framework for income taxation for businesses in Europe (Business in Europe: Framework for Income Taxation, or “BEFIT”), which will create a common rulebook for groups of companies operating in the EU and replace the current Common Consolidated Corporate Tax Base (CCCTB) proposals.

The action items in the Communication can be summarised as follows:

1) Implementation of the OECD solutions to reform the international corporate tax framework


The Commission reiterates its strong support and involvement in the OECD inclusive framework on a global consensus-based solution to reform the international corporate tax system, known as Pillar 1 and Pillar 2. In this context, the Commission will propose:

In addition, the implementation of Pillar 2 will have an impact on the pending proposal for recasting the Interest and Royalty Directive, as well as the EU blacklisting process.

2) Business tax agenda for the next 2 years


To ensure fair and effective taxation within the EU, the Commission will put forward:

To help businesses recover from the COVID-19 pandemic, the Commission:

3) New framework for business taxation in the EU – BEFIT


The Commission will propose a new framework for income taxation for businesses in Europe called “BEFIT” (by 2023).

BEFIT will be a single corporate tax rulebook for the EU, based on the key features of a common tax base and the allocation of profits between Member States based on a formulary apportionment. The use of a formula to allocate profits is expected to remove the need for the application of complex transfer pricing rules within the EU to the companies within the scope of BEFIT.

This proposal will replace the pending proposals for a CCCTB, which will be withdrawn.

In summary, the following timeline (points 2 and 3 above) should be borne in mind:

By Q4 2021 ATAD 3 legislative proposal: to address aggressive tax planning opportunities linked to the use of shell companies
By Q1 2022 DEBRA legislative proposal: to create a debt equity bias reduction allowance
By 2022 Legislative proposal for the publication of effective tax rates paid by large companies
2023 BEFIT proposal: to replace the CCCTB

 

Concluding remarks


In line with the EU tax package issued in July 2020 and its involvement in the international discussions to move towards Pillar 1 and Pillar 2, the Commission has set an ambitious tax agenda for the coming months and years. Taxpayers will need to carefully monitor the developments and assess the impact of the proposals on their operations.

How can we help?


The Tax Law partners and your usual contacts at Arendt & Medernach are at your disposal to further assess and advise on the impact of the Communication on your operations within the EU.

Download the press release

Luxembourg Newsflash – EU Commission proposes a new tax framework

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