Article: Small Is Beautiful: An Analysis of the HOT Proposal

The European Commission has published in 2023 a proposal to introduce a concept of Head Office Taxation (HOT) for small and medium sized entities by means of a directive. In April 2024 the European Parliament has adopted a legislative resolution. The purpose of the proposal is to reduce the current tax obstacles for SMEs to engage in cross border activities. In the article the author evaluates the HOT Proposal. The most relevant obstacles for SMEs are the compliance costs and the absence of the possibility to deduct cross border losses. The HOT Proposal addresses in particular the issue of compliance costs but does not improve the possibility to deduct losses. The scope of the HOT Proposal is limited to autonomous companies which operate exclusively abroad via permanent establishments. This limits the scope and effectiveness of the HOT Proposal. Further the current proposal does not treat all companies equally. Maybe the functioning of the common market is improved but this is not the case for all (SME) companies.