Critical Analysis of the BEFIT Proposal: Accounting Shopping and Profit Allocation

This article critically examines the European Commission’s Proposal for a Council Directive on Business in Europe: Framework for Income Taxation (BEFIT) introduced in September 2023. The BEFIT proposal echoes the objectives of the earlier Common Consolidated Corporate Tax Base (CCCTB) as it aims to establish a harmonized tax base for multinational enterprises with revenues exceeding EUR 750 million and allocate it using a formulary approach. However, the BEFIT proposal diverges significantly from the CCCTB in two key areas: its reliance on financial accounting standards for tax base determination and the adoption of a provisional apportionment system that expires in 2035.The article highlights the potential for accounting shopping due to varying acceptable accounting standards and their implications on tax base calculations. It additionally scrutinizes the provisional and anticipated apportionment methods by arguing that the proposed inclusion of intangible assets in the formulary approach may undermine the intended fairness and robustness of the tax system.The contribution suggests corrective mechanisms to mitigate these vulnerabilities and advocates for applying economic activity criteria when determining which accounting standard should be used. It also recommends placing a greater emphasis on sales in the apportionment formula to enhance the proposal’s effectiveness.