Introduction: The Committee on Economic and Monetary Affairs recently adopted a report by Kira Marie PETER-HANSEN on the proposal for a Council directive on transfer pricing. This directive aims to harmonize transfer pricing rules across EU Member States, ensuring the consistent application of the arms-length principle while simplifying compliance for companies and reinforcing tax enforcement within the Union.
KEY AMENDMENTS AND PROVISIONS:
Empowerment of Commission for Delegated Acts:
- The Commission is empowered to adopt delegated acts incorporating further amendments to OECD Transfer Pricing Guidelines, approved either by Member States or the Union.
Corresponding Adjustments:
- Member States must allow corresponding adjustments following a taxpayer’s request, considering primary adjustments made in other jurisdictions to prevent double taxation, subject to specified conditions.
- Taxpayer requests for adjustments must include comprehensive factual and legal circumstances, transfer pricing documentation, and effective tax rates for each relevant Member State.
- Member States should declare the admissibility of requests within 40 days and conclude the procedure within 200 days, extendable by mutual agreement for an additional 100 days.
Application of the Arms-Length Principle:
- The Commission can adopt delegated acts to provide further rules on applying the arms-length principle, ensuring tax certainty, mitigating double taxation risks, reducing tax disputes, and simplifying compliance through safe harbors.
- The Directive integrates a simplified transfer pricing compliance approach for distribution and manufacturing activities proposed in the Council Directive on Business in Europe (BEFIT).
EU Joint Transfer Pricing Forum (EFTP):
- The Commission is urged to establish and chair the EFTP, providing advice on maintaining uniform transfer pricing methodologies within the Union and globally, considering OECD and UN developments.
- The European Parliament participates as an observer in the EFTP and international negotiations on Transfer Pricing Guidelines.
Evaluation and Review:
- The Commission evaluates the Directive’s impact every three years, considering OECD or UN guidelines, and submits reports to the European Parliament and Council, potentially accompanied by legislative proposals.
- The Directive undergoes review for multinational enterprise (MNE) groups under the scope of the BEFIT Directive once it is in force.
Effective Date and Conclusion: The directive is set to apply from January 1, 2025, demonstrating the EU’s commitment to streamlining transfer pricing regulations, enhancing tax compliance, and fostering a cohesive approach to international tax practices within the Union.
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