The two authors work for the European Commission's Directorate General for Taxation and Customs Union. In this article, they explain the Commission's proposal for a Home State Taxation Pilot Project. The project is intended to limit the compliance costs for internationally active small and medium-sized enterprises (SMEs), who, when doing business in the European Union, currently may have to deal with up to 25 different tax systems. The authors present the basic approach and procedures, and go on to describe which enterprises qualify, how the home state and the home state group are determined, and the coverage of both taxes and sectors. Next, they discuss the possible interaction of the pilot project with the application of tax treaties and transfer pricing issues. It is now up to the EU Member States to define and agree on the precise scope and modalities of such pilot project.