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Transfer pricing

TA-9-2024-0219 · P9_TA(2024)0219 · PE756.000

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Parliament's amended version of the Commission proposal for a Council directive on transfer pricing harmonises Member States' transfer pricing rules and the application of the arm's length principle. It adds rules on corresponding and downward adjustments, a fast-track procedure, documentation templates and delegated acts for the Commission. It re-establishes an EU Joint Transfer Pricing Forum, extends the ETACA initiative and sets review and reporting duties. Member States must transpose the directive by 31 December 2024 and apply it from 1 January 2025.

Key points

  1. The directive harmonises Member States' transfer pricing rules and ensures a common application of the arm's length principle, simplifying compliance while enforcing tax rules.
  2. The arm's length principle is defined by reference to Article 9 of the OECD Model Tax Convention; associated enterprises must transact as independent third parties.
  3. Member States should grant corresponding adjustments and may use a fast-track procedure concluded in 180 days, joint audits, ETACA, ICAP and the Directive on administrative cooperation.
  4. Member States should not grant corresponding adjustments in specified cases, and may make downward adjustments only under conditions, to avoid double non-taxation.
  5. A taxpayer's results within the interquartile range should not be adjusted; results outside the arm's length range are adjusted to the median unless another point is more reliable.
  6. A common transfer pricing documentation approach is introduced, with one standard template, rules on content, language and timeframes, taking into account OECD Chapter V.
  7. The Commission is empowered to adopt delegated acts on documentation, on applying the arm's length principle to specific transactions, on safe harbours and on integrating the BEFIT simplified approach.
  8. The Commission shall establish and chair a European Forum on Transfer Pricing, with Member State representatives, taxpayers, academics, civil society and Parliament as observer.
  9. The scope of the European Trust and Cooperation Approach is extended to transfer pricing reviews of specific intra-Union flows, and Member States are invited to link it to advance pricing arrangements.
  10. The Commission shall evaluate the directive every three years, with a first report by 31 December 2029, and review its application for MNE groups under BEFIT.
  11. Information processed under the directive is retained no longer than 10 years, and information sent to the Commission may be transmitted to other Member States and Parliament.
  12. Member States shall transpose the directive by 31 December 2024 and apply the provisions from 1 January 2025.

Who is affected

  • Member States, which must apply the arm's length principle, grant adjustments and transpose the rules.
  • Multinational enterprise groups and associated enterprises operating cross-border in the Union.
  • Small and medium-sized enterprises operating across borders, for which inconsistencies create obstacles.
  • Tax administrations, which must deal with documentation and may make adjustments.
  • Taxpayers, who gain tax certainty and may use fast-track and dispute resolution mechanisms.

Figures and deadlines

  • USD 100 to 240 billion annually: OECD estimate of global corporate income tax revenue losses due to BEPS practices.
  • 180 days: period for the fast-track procedure when the primary adjustment is well founded.
  • 40 days: period for Member States to declare a request admissible or notify missing information.
  • 40 days: period granted to the taxpayer to provide missing information.
  • 200 days: period to conclude the procedure on double taxation from receipt of the taxpayer's request.
  • 100 days: possible single extension of the procedure if the taxpayer and Member States agree.
  • 10 years: maximum retention period for information, including personal data.
  • 31 December 2029: deadline for the Commission's first evaluation report.

Legal basis: Article 115 of the Treaty on the Functioning of the European Union.