Proposal for ‘Business in Europe: Framework for Income Taxation’ (BEFIT): A wrong turn in the right direction

The BEFIT framework has the potential to end the era of rampant tax abuse, and deliver much fairer business taxation across the EU – but the current proposal would lock in that abuse and even see tax revenues fall further. Policymakers must make urgent changes to the BEFIT proposals. In this report, we set out the key changes and quantify the country-level revenue impacts.

In brief, the current BEFIT proposal would essentially move to a system of unitary taxation without formulary apportionment. As such, unlimited group loss consolidation – which is inherent to unitary taxation – is the proposal’s only tangible contribution to the corporate tax rulebook in the EU. This generates a major tax cut. With no clear roadmap towards the introduction of formulary apportionment to replace the transitional allocation regime based on the anachronistic arm’s length principle, the BEFIT proposal at is stands is entirely unfit for purpose.

We recommend three main changes to put BEFIT back on the right track.