Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee on the work of the EU Joint Transfer Pricing Forum in the period July 2012 to January 2014

The global economic interdependence and the interaction of national tax rules can lead to double taxation or double non-taxation of multi-national enterprises. The Action Plan on Base Erosion and Profit Shifting (‘BEPS Action Plan’) presented by the Organisation for Economic Cooperation and Development (OECD) in July 2013 seeks to improve international tax rules and has received wide international support at the highest level. The Action Plan identifies several deficiencies in the existing international tax rules and standards, which can be exploited to erode the tax base in other jurisdictions and to shift elements of the tax base to reduce the overall tax bill.

From a European Union (EU) perspective, the existing gaps in international tax rules and standards hinder the smooth functioning of the Internal Market which encompasses 28 different tax regimes. The Commission considers it important to explore synergies between the current international debate on BEPS and discussions within the EU with view to establishing workable solutions within the EU, taking into account EU Treaty obligations, as well as to promote EU interests in the setting of international standards. The Commission also recognises that measures taken at EU level can contribute to achieving the objectives laid down in the BEPS Action Plan.

In the area of transfer pricing, multi-national enterprises (MNEs) and tax administrations (TA) are confronted with practical problems in pricing cross-border transactions between associated enterprises for tax purposes. The approach adopted by EU Member States to correctly evaluate the price of such transactions is that of the arm's length principle (ALP). The ALP is based on a comparison between the conditions applied by associated enterprises and the conditions that would have applied between independent enterprises.

However, the interpretation and application of the ALP varies – from one tax administration to another and between tax administrations and business. This can result in uncertainty, increased costs and potential double taxation or double non-taxation. These aspects impact negatively on the smooth functioning of the Internal Market.

The Commission set up in October 2002 the EU Joint Transfer Pricing Forum (JTPF), an expert group, to find pragmatic solutions to problems arising from the application of the ALP within the EU. The JTPF operates on the basis of four-year mandates, established through Commission Decisions. The present mandate of the JTPF runs until 31 March 2015.

The JTPF has been an important resource for the Commission’s work on improving the practices of transfer pricing administration and functioning in the EU. It can also serve as a useful source of input to the G20 sponsored OECD BEPS project.

This Communication reports on the work of the JTPF in the period July 2012 to January 2014.

• Primary Source

EUR-Lex: COM(2014)315: Follow the progress of this communication through the decision-making procedure http://eur-lex.europa.eu/legal-content/EN/HIS/?uri=COM:2014:315:FIN

ESO: Background information: Guidelines on Transfer Pricing – Frequently Asked Questions http://www.europeansources.info/record/memo-guidelines-on-transfer-pricing-frequently-asked-questions/

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