BEFIT or common consolidated tax base

On 24 January 2024, the Senate of the Czech Republic discussed the Proposal for a Council Directive on business in Europe: a framework for income taxation, the so-called (BEFIT = Business in Europe: Framework for Income Taxation). The draft directive was adopted by the European Commission on 12 September 2023.

The Senate of the Czech Republic discussed the draft directive and recommended the Government not to support the draft directive in case of an absence of the will of the Member States to find a compromise solution.

Below, we would like to provide only very brief background information on the proposed Directive, the fate of which is still uncertain (depending on the will of individual EU Member States).

What is BEFIT?

This is a proposal for an EU directive to create a common consolidated income tax base, on which to calculate tax. The tax thus calculated will then be allocated to individual Member States according to certain rules.

BEFIT is, to some extent, a continuation of the effort to “fairly” distribute the taxation of large groups of companies, which more or less follows the issue of top-up taxes effective from 31 December 2023. While the aim of the already established top-up taxes is to ensure at least a minimum level of taxation, the BEFIT aims at a “fair” distribution of tax revenues to individual Member States.

Who will it apply to?

The Directive should apply exclusively to EU Member States, or to national and multinational groups of undertakings, which draw up consolidated financial statements and whose annual aggregate revenue reached EUR 750 million or more in two of the last four financial years.

If the ultimate parent entity is located outside the EU, the given group is subject to BEFIT if the aggregate revenue in the EU amounts to at least 5% of the revenue of the group on the basis of its consolidated financial statements, or an amount of EUR 50 million.

The highest parent entity (or delegated entity) should provide an information report.

Since when should BEFIT apply?

The draft directive is expected to apply from 1 July 2028, while individual Member States should implement the directive in their legislation by 1 January 2028.

However, the consensus of all EU Member States is important for the implementation of the Directive.

We will keep you informed of further developments on this issue.