What the proposed European taxation system (BEFIT) could mean for the UK

The European Commission has proposed the ideas of a European common tax base, even though Brexit means this will not directly apply in the UK, if it is adopted then UK businesses may be affected.

UK businesses with group companies or branches in the EU could need to adopt different transfer pricing and tax calculations under BEFIT, requiring new data collection and reporting tools.

The new "BEFIT" project (Business in Europe Framework for Income Taxation) would introduce a framework for corporate taxation in the European Union (“EU”). This framework would give the EU a single set of rules for corporate income tax, based on a common tax base and a formulary apportionment to allocate profits between Member States.

BEFIT’s key objectives are the following:

Increasing the resilience of businesses by reducing the complexity of tax rules and the compliance costs faced by EU businesses operating across borders
Removing obstacles to cross-border investment and make the single market a more attractive location for international investment; and
Providing sustainable tax revenue, which is particularly important in the current challenging economic climate.

Although BEFIT will not directly apply to UK companies, it could still have the following indirect effects:

UK-based groups with EU subsidiaries will need to prepare to operate BEFIT, calculating and reporting taxable profits for their EU entities on a different basis to the rest of the group.
If BEFIT changes the transfer pricing rules between EU and non-EU connected parties, groups with UK and EU members may need two transfer pricing systems.
A UK-based company with a branch or other activities in the EU will need to consider whether it could be classed as a permanent establishment, which would be subject to BEFIT.

Read the full article below to discover insights from our tax experts and find out what BEFIT could mean for your business if it is introduced.

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