The European Commission has unveiled a pilot scheme to allow small and medium sized cross-border companies to save money by filing just one tax return.

Lobbyists for the sector welcomed the "home state taxation" scheme but the Brussels executive faces an uphill task to win over member states.

The Commission said firms that employ up to 250 people often baulk at opening operations outside their home state in the 25-nation European Union because of the cost of complying with multiple tax administrations.

Under the pilot scheme, a firm with operations in more than one EU state could file tax returns to its home state instead of submitting returns to every state in which it operates. Some 98 per cent of firms in the EU are small and medium sized, employing 66 per cent of the workforce. Single filing would save money and boost competitiveness, the Commission said.

The member states would tax profits at their national rate, with the amount of taxable profits available to each member state depending on factors such as how many employees a firm had on its turf, Michel Aujean, a Commission tax official, said.

Some sectors such as financial services would be excluded, as would operations based in non-EU states.

For the scheme to work, states would have to draw up bilateral and multilateral agreements to recognise each others' tax systems, as no EU legislation would be involved.

Small business lobby UEAPME said only three per cent of smaller firms have operations in more than one country because high cross-border costs like tax compliance distort the bloc's single market. "UEAPME is calling on the member states to introduce this pilot scheme without delay and show they are committed to improving competitiveness in the EU," UEAPME said.