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Establishing a Head Office Tax system for micro, small and medium sized enterprises, and amending Directive 2011/16/EU

TA-9-2024-0218 · P9_TA(2024)0218 · PE755.999

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Written by a language model from the full text only; every figure comes from the text. The paragraph links open the paragraph a statement rests on — check the text itself before relying on it.

Parliament's amended version of a proposed Council directive sets up 'Head Office Taxation' rules letting micro, small and medium-sized enterprises (SMEs) compute the taxable result of their permanent establishments and up to two subsidiaries under the rules of the head office member state. The option is voluntary, runs for a renewable seven fiscal years, and is handled through a one-stop-shop: the head office files one tax return with its own tax authority, which collects the tax and transfers it to the host member states. Eligibility requires joint turnover of the establishments and subsidiaries not exceeding triple the head office turnover for the last three fiscal years, and tax residence in the head office member state for the last fiscal year. Income from shipping activities under a tonnage tax regime is excluded, and the option ends if the SME stops being an SME, sets up more than two subsidiaries, or moves its tax residence. The Commission must evaluate the directive five years after it starts to apply, and member states must adopt the measures by 31 December 2024 and apply them from 1 January 2025.

Key points

  1. The directive lays down rules for computing the taxable result of permanent establishments and subsidiaries of SMEs that meet the criteria in Article 2(1).
  2. An SME qualifies if it operates in other member states through one or more permanent establishments and/or up to two subsidiaries.
  3. The head office may opt in if the joint turnover of its permanent establishments and subsidiaries did not exceed, for the last three fiscal years, triple the turnover generated by the head office.
  4. The head office must have been resident for tax purposes in the head office member state during the last fiscal year, or since its establishment if more recent.
  5. Once opted in, the rules apply to all the head office's permanent establishments or subsidiaries in other member states, including new ones from the moment of establishment.
  6. Head offices deriving income from shipping activities subject to a tonnage tax regime are excluded from applying the rules to that income.
  7. The head office must notify its choice to the filing authority at least two months before the end of the preceding fiscal year, and the authority must verify eligibility within one month.
  8. The option applies for a renewable period of seven fiscal years, after which it ceases unless the head office notifies renewal.
  9. The option terminates early if the SME transfers its tax residence, exceeds the turnover threshold for three fiscal years, is no longer an SME, or sets up more than two subsidiaries.
  10. The head office files a single tax return with the filing authority, which collects the tax for each permanent establishment and subsidiary, applies the host member state's rate and transfers the amount without delay.
  11. Host member states may request joint audits, and the head office member state must invite the host member state to carry out an audit jointly if it acts on its own initiative.
  12. The Commission must evaluate the directive five years after it starts to apply, examining a possible extension of scope, eligibility requirements, exclusions and streamlining.

Who is affected

  • Micro, small and medium-sized enterprises operating cross-border through permanent establishments or up to two subsidiaries, which may opt into the simplified rules.
  • Member states' tax authorities, which verify eligibility, exchange information, collect and transfer tax, and may conduct joint audits.
  • SMEs with shipping income under a tonnage tax regime, which are excluded from the rules for that income.
  • SMEs that set up more than two subsidiaries, which lose eligibility and cannot renew the option.

Figures and deadlines

  • The joint turnover of permanent establishments and subsidiaries must not exceed triple the head office turnover for the last three fiscal years.
  • The option applies for a renewable period of seven fiscal years.
  • The head office must notify its choice at least two months before the end of the preceding fiscal year.
  • The filing authority must inform the head office of its findings within one month of the notification.
  • The Commission must evaluate the directive five years after it starts to apply.
  • Member states must adopt and publish the measures by 31 December 2024 and apply them from 1 January 2025.

Legal basis: Article 115 of the Treaty on the Functioning of the European Union