On 3 August 2021 a letter addressed to the European Parliament on behalf of the European Commission confirmed that the single corporate tax system for the EU, to be known as Business in Europe: Framework for Income Taxation (BEFIT), would take into consideration the basic principles of the planned OECD/G20 agreement on taxation of the digital economy under Pillar 1 and Pillar 2.

The letter notes that the competitiveness of the internal market is negatively affected by the absence of a common framework for corporate taxation. A coordinated EU approach to corporate taxation is therefore required. The planned BEFIT system would use a common tax base and would allocate profits between EU Member States on a formulary apportionment basis. BEFIT would replace the proposed Common Consolidated Corporate Tax Base (CCCTB).

As with the OECD/G20 proposals, the EU’s BEFIT proposal would address cross border issues linked to the taxation of groups of companies. Coordinated EU action would therefore replace various national efforts to introduce unilateral measures. The Commission would finalise the BEFIT proposal after carrying out broad consultations with the EU Member States, the European Parliament and businesses.

The letter from the European Commission welcomed the contribution from the US to the OECD discussions on international tax reform and the input into the discussion of a global minimum effective corporate tax. The European Commission has noted that work is continuing on important technical details of the OECD/G20 proposals following the recent agreement reached by the OECD’s Inclusive Framework. The Commission will follow up this agreement by proposing an EU Directive to implement the OECD agreement in the EU.

The European Commission has already issued a Communication on Business Taxation for the 21st Century on 18 May 2021. This clarified that important features of BEFIT would include giving appropriate weight to sales to each destination country, reflecting the importance of the market where the multinational group conducts business operations; and taking into account assets (including intangibles) and labour (personnel and salaries) to arrive at a balanced distribution of corporate tax revenue among the Member States. The proposals would generally be based on the OECD/G20 approach and the apportionment formula used to establish taxable profits in each Member State would take into account the extent of digitalisation in current global business.