HOT – A head office tax system for small companies [EU Legislation in Progress]

Written by Pieter Baert (3rd edition, updated on 22.07.2024).

When businesses start operating across borders, they are faced with a new and unfamiliar corporate tax system in each EU Member State. As a result, businesses with cross-border activities have to spend time and resources on understanding and complying with complex local corporate tax rules. This represents a significant administrative burden, in particular for small companies.

On 12 September 2023, to lower tax compliance costs, the European Commission tabled a proposal for a Council directive to establish a head office tax system (HOT) for small businesses. Under HOT, micro-enterprises and small and medium-sized enterprises operating exclusively through permanent establishments would be able to continue to apply their national corporate tax rules – i.e. the rules they are already most familiar with – when they expand across borders. They would also be able to file a single tax return in the Member State of their head office, rather than separate tax returns in the different Member States. This would cut compliance costs and remove a significant barrier to the cross-border expansion of small companies in the single market.

The proposal is subject to a special legislative procedure, requiring unanimous support in Council, following consultation of the European Parliament and the European Economic and Social Committee. The European Parliament adopted its (non-binding) resolution in April 2024. Negotiations in Council are still on-going.

Complete version

• July 2024: ‘HOT – A head office tax system for small companies‘ (3rd edition)