Illustrative stock photo (source: Pixabay)
The Slovak Finance Ministry completed the comment procedure on an ambitious proposal for an EU directive with the marketing abbreviation BEFIT, which may affect more than 3,000 Slovak companies.
This is important, because these firms have a significant impact on corporate income tax collection in our country, which will amount to about €4.5 billion in 2024. These companies are subject to the minimum effective tax rate of 15 percent, and it therefore makes sense that the EU wants to set uniform rules on what base this tax will be calculated from in the future. Let us recall that so far, only the VAT has been harmonised within the EU.
Even though this undoubtedly is a significant change, in Slovakia, not much is known about the proposal for a new directive. If you quickly 'google' the term BEFIT, you are first offered a whole range of gyms or weight loss packages.
If you don't lose patience, the EU website will tell you that this is the acronym for , under which the proposal for a directive with the same title was published last September to set out uniform rules for determining the tax base and make it easier for multinationals to do business in the EU.
The new proposal builds on the directive on a minimum effective tax rate of 15 percent, which has been in force since January 1, 2024 without major problems also in Slovakia.
The minimum tax is not expected to bring significant new public resources, but it should mainly contribute to fairer competition from the EU market perspective in the fight against US tech giants. The latter benefit greatly from the fact that virtual presence does not automatically imply the obligation to tax profits, which has historically relied on the traditional concept of tax residence and tax base.
The European BEFIT Directive will be mandatory for multinationals with total consolidated revenues of more than €750 million, but also smaller companies will be able to follow it voluntarily. The Finance Ministry therefore estimates that it will apply to more than 3,000 entities in Slovakia.
On behalf of the Slovak companies, both the Club 500 and the National Union of Employers (RÚZ) took an unequivocal position in their official comments. Abroad, similar proposals have caused more intense debate and criticism, and I will try to explain why.
Benefits and risks
The directive is intended to provide a single set of rules for corporate income tax based on elements of a common tax base. In the next step, the calculated tax will be redistributed between EU member states using an agreed formula.
The advantage for companies should be that in the EU they will only have to file their tax return in one country. This replaces the previous CCCTB (common consolidated corporate tax base) proposal, which failed for political reasons, first in 2011 and again under a similar name in 2016. The new marketing acronym was supposed to help forget these failures.
At a glance, BEFIT has the following important parts, the technical details of which are yet to be decided at EU level:
Tax base calculation – common accounting standard or special set of rules
Formula to redistribute the common tax base among countries
Adjustment of transfer pricing rules – room for simplification
On the one hand, the potential simplification of rules for large multinationals in the EU market, fairer competition and greater legal certainty are clear benefits. On the other hand, the risk of overburdening the same companies with new rules, which have become disproportionately numerous in recent years, must be taken very seriously, even taking into account the directive's effective date of 2028.
However, according to a discussion with representatives of large multinationals operating in the EU, which I last attended this January in Paris, the executives in charge are not enthusiastic. Firstly, because of concerns about the complexity of the transition, then because of fatigue with the amount of changes that have taken place in the EU in recent years, or because of the controversial quality of the data that has been collected in the EU for several years now, for example for the purposes of the Country by Country report (EU DAC4 Directive).
The biggest risk, however, is that it is not yet clear what the impact will be on the national budgets of individual EU countries; this will mostly depend on the final form of the redistribution formula. In any case, smaller countries in particular are concerned about handing the keys to the tax mixer, so to speak, to the larger ones where tax returns will be filed.
Political reality
At EU level, decisions are taken unanimously, so the chances of approval are not high. However, there is no other way, as a global project aimed at fairer taxation of the tech giants is highly likely to fail due to US opposition at G20 level.
The Finance Ministry's proposal is reasonably cautious, awaiting the final version of the technical details. In contrast, the Club 500 and the RÚZ both took a strongly negative stance, underlying the risk of "the loss of tax sovereignty", but did not comment on the technical details.
Since it is the technical details that will decide, my personal opinion is that the EU should listen more to the voices of companies that are tired of constant change. Unless a clear simplification of rules can be guaranteed, whether by a clear stance on an accounting standard or transfer pricing, it would be unwise to launch another several-year process of discussions and to waste the energy of experts and officials.
Of course, the topic is already resonating in other EU countries, including Poland and the Czech Republic, so it would be a political surprise if the proposal were to pass unanimously. Thus, Slovakia does not really need to worry about losing its tax sovereignty in the nearest future.
Renáta Bláhová is the founding partner of the advisory firm BMB Partners Taxand and tax advisor.
