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    BEFIT, TP Directive and the HOT Proposal

    On Tuesday 12 September, the European Commission published several proposals. In this blog we will briefly discuss each of the proposals, the expected timelines and the objectives of the proposals. Whereas you can find a more detailed blog on BEFIT and on the TP Directive on our website as well.

    BEFIT Proposal

    The proposal with the biggest impact if adopted of the published proposals is called ‘’Business in Europe: Framework for Income Taxation’’ (BEFIT). This proposal was announced earlier and aims to lower the burden on businesses and tax authorities by introducing one set of rules to determine the tax base of group companies operating within the EU. This will lower the compliance costs for the group companies since all the tax bases of the Member States can be aggregated into one single tax base. The BEFIT proposal will apply to groups operating in the EU, with an annual combined revenue of €750 million and where the ultimate parent entity holds, directly or indirectly, at least 75% of the ownership or profit rights. Smaller groups can choose to opt in, but they do have to have consolidated annual statements.

    Transfer Pricing Directive

    Part of the BEFIT Package is a Council Directive on Transfer Pricing. Every jurisdiction has its own domestic legislation regarding transfer pricing. Although most domestic legislation follows a common approach to the arm’s length principle, there are no harmonised TP rules in the EU. All the different domestic legislation can cause problems such as profit shifting, double taxation and high compliance costs. The European Commission proposes a TP Directive which will harmonise the TP legislation in the EU. The TP Directive aims to establish a common approach to transfer pricing problems and establish a unified approach to the arm’s length principle in the EU. This will tackle the high compliance costs for groups in the EU and makes profit shifting and tax avoidance more challengeable, while also eliminating the possibility of double taxation. The TP Directive will become effective for all groups with entities registered in at least one of the Member States or groups with PEs in one or more Member States.

    HOT proposal

    The European Commission has presented a series of initiatives to support small and medium-sized enterprises in the EU (SMEs). Part of these initiatives is the HOT (Head Office Tax Systems) proposal. This proposal will give SMEs that are operating through a PE across multiple EU Member States the possibility to interact with only one tax authority, that of the Head Office.

    The HOT proposal is not part of the BEFIT Package. However, if the SMEs outgrow the scope of the HOT proposal, they can choose to opt in for the BEFIT proposal. In this way the two proposals are complementary.


    The overall objective of the published proposals is to reduce compliance costs for groups in the EU and harmonise legislation. By harmonising the legislation, distortions in the market, that influence business decisions, are also being removed. This is also likely to result in better competitive conditions. The HOT proposal might cause some distortions, but the reduction of the compliance costs will outweigh this possibility.


    The proposals all first need to be adopted by the Council. This means there has to be a unanimous vote. Once voted in by the Council the TP Directive and HOT Proposal are the first to be implemented. Member States are expected to  implement the rules before 31 December 2025 and they will become effective on 1 January 2026. The BEFIT Proposal should be implemented in the legislation of the Member States by 1 January 2028, with the rules becoming effective from 1 July 2028.

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