European Commission releases Directive Proposal on Transfer Pricing: A trojan horse?

On 12 September 2023, the EU Commission released a Directive Proposal on Transfer Pricing (hereafter, the “Proposal” or the “TP Directive”) as part of the package that includes the Directive Proposal on BEFIT which was commented in our previous ATOZ Alert. The Directive Proposal aims at integrating key transfer pricing (“TP”) principles into EU law with the objective of putting forward common approaches for Member States.

Due to the lack of harmonised TP rules at EU level, Member States enjoy large discretion in interpreting the OECD TP Guidelines including for crucial concepts such as “associated enterprises”. The EU Commission points to several issues linked to the complex nature of TP rules including profit shifting and tax avoidance, litigation and double taxation and high compliance costs.

With the Proposal, the EU Commission would like to incorporate the arm's length principle (“ALP”) and key TP rules into EU law, create a “fast-track” procedure to resolve double taxation, clarify the role and status of the OECD TP Guidelines and create the possibility to establish common binding rules on specific transactions.

The key parts of the Directive Proposal are detailed in this News.