Proposal For The Directive "HOT"

On 12 September 2023, the European Commission published a proposal for a new directive "Head Offices Tax System" ("HOT Proposal") aiming at creating a simplified tax system for small to medium-sized enterprises ("SMEs") based in a EU Member State and carrying out their activity through one or several permanent establishment(s) ("PE") established in other EU Member States.

What is it?

The HOT Proposal would introduce two levels of simplification (which will be optional for all eligible SMEs):

• First, for the purposes of the computation of the PE(s) tax base: eligible SMEs could calculate the taxable result(s) of their PE(s) based only on the taxation rules of the Member State of their head office, while the applicable tax rate(s) would remain that/those of the Member State(s) where the PE(s) is/are located;