EU plans withdrawal of BEFIT, Head Office Tax and digital-presence proposals

Three files, different mechanisms

BEFIT, proposed in COM(2023) 532, would introduce common rules for computing group members’ taxable results. Article 42 would aggregate those results into a single tax base, with a negative base carried forward against a later positive base. Article 45 sets a transitional allocation method based on members’ historical taxable results. The proposal concerns how a group tax base is computed and shared, rather than replacing national corporate tax rates with one EU rate.^[2][5]

The separate Head Office Tax proposal, COM(2023) 528, targets qualifying standalone SMEs operating through permanent establishments in other Member States. It would let them use head-office-state rules to calculate branch taxable results and deal with the head-office administration through a centralised return. The host Member State’s rate would still apply to its branch profits. This is not the same group-wide aggregation model as BEFIT.^[3][6]

The older COM(2018) 147 proposal would add a significant-digital-presence nexus to the permanent-establishment framework. Its Article 4 uses digital-service revenues, user numbers and business-contract numbers as alternative indicators; Article 5 concerns profit attribution. The withdrawal plan therefore reaches both corporate tax simplification initiatives and an earlier approach to taxing digital business without conventional physical presence.^[4][1]

What tax teams should do now

Annex III explains that the files are unlikely to obtain Council support within a reasonable period, highlighting the unanimity requirement for tax matters. Tax teams should distinguish the Commission’s intention from a completed procedural withdrawal and retain the exact proposal references in their policy watchlists. This work-programme announcement does not itself enact any of the proposed systems or change a company’s current return, payment or registration obligations. Monitor the subsequent withdrawal record or a replacement proposal before revising implementation assumptions.^[1]