Urgent need to implement harmonized transfer pricing framework for the EU according to ECON
On 22 February 2024, the Economic Monetary Affairs Committee (“ECON”) of the European Parliament adopted its opinion on the European Commission’s (“EC”) proposal for a Directive on transfer pricing (“TP Directive”) introduced on 12 September 2023 (the “ECON Report”). For further information on the proposed TP Directive, please refer to our previous newsflash.
The ECON Report which received strong support in committee will be considered by Parliament's plenary before advancing to the Council for further deliberation.
The ECON Report emphasizes the urgent need to promptly implement harmonised transfer pricing rules to prevent multinational enterprises from exploiting the lack of EU harmonisation on the matter.
According to the rapporteur, Kira-Peter Hansen, the opinion emphasizes democratic and future-proof measures to combat transfer pricing abuses within the EU. The proposal underscores the importance of reinstating the EU Joint Transfer Pricing Forum and acknowledges the potential relevance of alternative guidelines, such as those from the United Nations, alongside the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (“OECDTPG”).
Key amendments of the ECON Report to EC’s proposal
The proposed amendments to the TP Directive aim at enhancing the effectiveness and consistency of transfer pricing regulations within the EU and covers the following key points:
- Shortening entry into force: the proposal advocates for bringing forward the entry into force from 2026 to 2025.
- Reinstatement of the EU Joint Transfer Pricing Forum: there is a call for reinstating the EU Joint Transfer Pricing Forum to enhance cooperation and coordination among EU member states in transfer pricing matters, fostering consistency and effectiveness in regulatory enforcement.
- Alignment with OECD TPG: emphasis is placed on aligning as closely as possible the TP Directive rules with the latest OECD TPG to ensure regulatory coherence and harmonization with international standards.
- Empowerment of the EC: ECON Report seeks to empower the EC to propose additional implementing rules on transfer pricing matters, enhancing regulatory agility and capacity to address emerging challenges effectively.
- Dispute Resolution Mechanisms: introducing of "fast-track" mechanisms which can respond to all demands. The proposal outlines the importance of having access to dispute resolution mechanisms to prevent double taxation and ensuring greater tax certainty for taxpayers involved in cross-border transactions within the EU. It suggests strengthening the use of Mutual Agreement Procedures and invites the Members States to allocate resources on this tool.
- Simplification and mitigation of double non-taxation: introducing the possibility for the EC to adopt further rules, such as safe harbours, to simplify the application of the arm’s length principle in the EU, to ensure more tax certainty and mitigate the risk of double non-taxation and double taxation, and to reduce tax disputes and tax abuse.
- Sunset Clause: according to which it should first cease to apply to companies falling under the scope of the proposal for a Council Directive on Business in Europe: Framework for Income Taxation (see our previous newsflash on BEFIT) as of 2035 and as of 2040, for all other multinational enterprises operating in the EU, except for their transactions with third countries.
Conclusion
In a nutshell, the proposed amendments focus on shortening the implementation, promoting tax transparency and coordination, outlining dispute resolution mechanisms, and empowering the EC to take further measures in the field of transfer pricing. The ECON Report is expected to be voted on at the plenary session of the European Parliament on 10 April 2024, representing a significant step in shaping the final text of the Directive.
