Statement by the IFSP in relation to the reasoned opinion of the House of Representatives of Malta on the proposal for a Council Directive on Business in Europe: Framework for Income Taxation (BEFIT)

5th March 2024 • News

The IFSP welcomes the Reasoned Opinion issued by Malta’s House of Representatives on the EU Proposal for a Council Directive on Business in Europe: Framework for Income Taxation, more commonly known as the BEFIT Directive.
The Reasoned Opinion, issued on the 16th February 2024, is aligned with the position the IFSP has taken in its discussions with relevant stakeholders, authorities and MEPs and following which a position paper thereon was presented to the relevant authorities last December 2023 with respect to the proposed BEFIT Directive.
The IFSP in principle upholds responsible tax principles and is not opposed to international tax reform. However, the Institute believes that the BEFIT Directive as proposed by the EU Council, does not achieve the goals it was set out to achieve to the extent that the proposal may be perceived as exacerbating the uneven playing field that it seeks to address, intensifying the already large tax compliance burden that EU businesses face year on year.  Furthermore, the IFSP believes that the BEFIT Directive undermines the tax sovereignty that EU Member States should retain under the guise of the elimination of tax obstacles to cross border economic activity, and this to the detriment of all EU Member States.
If the BEFIT Directive were to be promulgated by the European Parliament in its current format, the IFSP is of the opinion that businesses across Member States will be disadvantaged compared to those businesses operating outside of the EU. The said concerns are also expressed by a number of other EU member states and, it is pertinent to point out that the respective Parliaments of Sweden, Poland, Ireland and the Czech Republic have also presented their objections to the BEFIT Directive through a Reasoned Opinion thereon.
Given the transition from 27 different national tax frameworks to one harmonised framework, several complexities are likely to arise given the unique features of the tax system of each Member State. From a Malta tax law perspective, there are numerous unfamiliar or diverging concepts that would be impacted with any introduction of the BEFIT Directive, with some measures, indeed, conflicting with local tax rules. This is apart from the increased compliance reporting, computational and filing costs for stakeholders and the additional administrative burden on the competent authorities thereof. This will, no doubt, result in increased costs to business operators, and contrary to what the stated objective of the Directive is in principle set out to achieve in reducing tax complexity, and safeguarding cost effectiveness of doing business in Europe.
Furthermore, the BEFIT Proposal contains a number of misalignments with the EU’s own Pillar 2 Directive and fails to adopt equivalent rules to determine the tax base as set out in the said Pillar 2 Directive, and instead opts for yet another body of rules to determine the taxable base for BEFIT tax computational purposes.
The IFSP reiterates its firm opinion that taxation policy remains a national competence and EU Member States should still be allowed the flexibility for their tax systems to be structured in such a way to reflect their economic reality. EU Member States therefore should have the freedom to tailor their tax policy to incentivise their economies in the best way they deem appropriate, naturally within established international and EU principles.
The Reasoned Opinion issued on 16th February 2024 by the House of Representatives of Malta can be viewed at the following link.

Chris Curmi
Chair of the Tax & EU Affairs Sub-Committee