BEFIT purports to simplify tax reporting and reduce compliance costs for businesses in Europe. BEFIT contains a common set of rules for calculating an aggregated tax base for members of a BEFIT group and the allocation of the tax base between BEFIT group members. If adopted at Council the new rules must be implemented by 1 January 2028 and applicable from 1 July 2028. If adopted, it is expected to apply to approximately 4,000 groups in Europe.

BEFIT was initially announced by the Commission in 2021 when it withdrew the preceding proposals for a common (consolidated) tax base after 5 years of unsuccessful negotiations before Council, suffering a similar fate to all previous attempts by the Commission to impose a common and consolidated tax base in Europe.  

BEFIT is being launched in the context of agreement having been reached by all EU Member States  on common rules to impose a minimum effective tax rate on large MNEs under the Pillar 2 Directive (COUNCIL DIRECTIVE 2022/2523 on ensuring a global minimum level of taxation for multinational groups in the Union)(“Pillar 2”). It is not surprising that buoyed by this success at Council, the Commission thought the timing was ripe for a renewed effort to get its flagship proposal on the table at Council. It is crucial in the Commission’s eyes that Member States have now all reached a common approach to taxing MNEs within the Pillar 2 rules, and that concepts such as starting from financial statements and apportioning the tax base between Member States are no longer purely theoretical. BEFIT draws heavily on Pillar 2 concepts, albeit deviating from Pillar 2 on certain aspects (for example the in-scope groups and less extensive adjustments). It is a notable element of the proposal that the Commission has, for now, abandoned the full formulary apportionment approach to allocating profits between the BEFIT group members.  A formula based on the presence of tangible assets, employees and destination of market sales, has long formed the central final element of its predecessors’ proposals.  This is clearly a pragmatic attempt by the Commission to recast BEFIT as being about tax certainty and simplification, and not wanting to incur the ire of smaller Member States that would lose out on too much of their tax base if the full formulary apportionment was implemented.  However, the draft allows for the inclusion of a formula before 2035. 


BEFIT rules will apply to groups coming within the definition of the “BEFIT Group”. It will be optional for other taxpayers.

As with Pillar 2, a BEFIT Group must prepare consolidated financial statements and must have annual combined revenue exceeding EUR750 million in two of the previous four years. Where the BEFIT group is headquartered outside the EU, a subset of that group consisting of the EU subsidiaries and PEs will form a BEFIT Group so long as it has raised at least EUR 50 million annual combined revenues in two of the previous 4 years, or account for at least 5% of the total group revenue. The BEFIT group requires a 75% ownership right or rights to profits. Groups that do not meet these criteria may opt-in to BEFIT if the group prepares consolidated financial statements. The election must be taken for five years.

Computation of BEFIT Base

In the first instance, the tax base of each BEFIT Group member is calculated by starting with the Financial Accounting Net Income of Loss (FANIL) taken from the consolidated financial statements prepared under the accounting standards of the UPE (which can be prepared under IFRS or generally accepted accounting principles of the Member States (“GAAP”).   

As with Pillar 2, adjustments are made, however the extent of those adjustments is less extensive. For example, comparable to Pillar 2, BEFIT makes adjustments for exclusion of the income/loss attributable to a PE and contains a participation exemption so as to exclude 95% of dividends received or accrued during the financial year where the BEFIT Group member holds a qualifying ownership interest (i.e. an ownership interest of 10% of the profits, capital, reserves or voting rights that is held for more than 1 year). Similarly, 95% of the gain or loss arising from the disposition of a BEFIT Group member can be excluded (with certain exceptions) where it holds a qualifying ownership interest. Other examples of adjustments include the recognition of corporate tax paid or accrued in the fiscal year as well taxes paid under the Pillar 2 Directive or under the QDMTT.  BEFIT contains a common set of tax depreciation rules, which the Commission states is closer to financial accounting than national tax depreciation rules. BEFIT also contains specific rules on companies entering and leaving the BEFIT Group and reorganisations.

Aggregation of the BEFIT Group Tax Base & allocation between Member States

These individual preliminary tax base calculations are then aggregated together to calculate the aggregate BEFIT Group tax base.

Instead of using the formulary apportionment a transitional allocation rule will be utilised that will allocate a percentage of the aggregated tax base to each member of the BEFIT Group on the basis of the average of the taxable results of that group member for the previous three fiscal years as a percentage of those of the BEFIT Group. For the first three years of the operation of the BEFIT rules the domestic tax rules will be used to calculate the annual taxable results, allowing for the incremental introduction of the BEFIT rules. In terms of being seen not to erode fiscal sovereignty of the Member States, the Directive includes a provision which allows Member States to increase or decrease the allocated part of the tax base through domestic tax provisions, so long as in line with Pillar 2.  

The full formulary apportionment using substantive factors may be proposed by the Commission by way of a Directive before 2035.

Withholding Taxes and Cross-Border loss relief

BEFIT will allow for the cross-border loss relief, a long-standing aim of the Commission. Another carrot is that there will be no withholding taxes on transactions such as interest and royalty payments when the beneficial owner is within the BEFIT Group. It is interesting in the context of the Commission’s wider policy agenda at present that the question of who constitutes the beneficial owner is left to the Member State of the recipient.

Transfer Pricing simplification within a BEFIT Group

BEFIT also encompasses simplified transfer pricing rules for transactions between the BEFIT Group and associated enterprises. In a similar vein to the OECD Pillar 1 Amount B, it will introduce simplified transfer pricing benchmarking for limited risk activities such as distribution activities by low-risk distributors and manufacturing activities by contract manufacturers. These transfer pricing measures are limited to administration of transfer pricing between BEFIT Group members and associated enterprises and are not to be confused with the Proposal for a Transfer Pricing Directive that seeks to introduce a harmonised approach to the application of the OECD transfer pricing guidelines to Member States.  

How will the BEFIT rules be administered in practice?

A One-Stop-Shop will allow one group member to fill in the group’s information returns with the tax administration of one Member State.

Tax audits and dispute settlement will remain at the level of each Member State. In some cases, audits may need to be carried out jointly under the existing legislative framework.

Next Steps

BEFIT will go before the Council for negotiations chaired by the Spanish Presidency. Given the Presidency has undertaken to have agreement reached on other long-running proposals, namely ATAD 3 by the November ECOFIN meeting, one would expect that negotiations on the technical aspects of the BEFIT proposal to really start under the Belgian Presidency in January 2024. As with all tax measures, a unanimous vote of all Member State is required, and it remains to be seen whether, even in a post-Pillar 2 world, Member States with historically steadfast resistance to encroachment by the EU on fiscal sovereignty will agree. A view clearly shared within the Commission itself, given the recent proposal to raise European own resources through a levy on Member States (not companies) based on .5% of the corporate profits in that Member State.