A Governance Analysis of BEFIT: How the Member States’ Wish to Obtain more Regulatory Authority is Driving a Revolution

Abstract

This contribution analyses the ongoing BEFIT proposal (Business in Europe: Framework for Income Taxation) of the EC (European Commission) from a governance perspective. For this matter, it considers the proposed replacement of the arm’s length standard with a system of unitary taxation and formulary apportionment (FA) as a changing regulation strategy to tax multinational companies. It argues that the BEFIT proposal indicates a change from a reflexive regulation strategy to a command and control regulation strategy. The future approval of this proposal would imply that the Member States no longer want to count on the relative freedom of taxpayers to allocate profits, but attempt to take full responsibility for that allocation instead. This contribution concludes that this wish of the Member States to obtain more regulatory authority to tax multinational companies is the catalyst of the ongoing BEFIT revolution. BEFIT, harmonization, transfer pricing, arm’s length principle, formulary apportionment, unitary taxation, regulatory authority