Legal provisions of COM(2023)529 - Transfer pricing - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2023)529 - Transfer pricing. |
|---|---|
| document | COM(2023)529 |
| date | September 12, 2023 |
CHAPTER I
GENERAL PROVISIONS
Article 1
Subject matter
This Directive lays down rules to harmonise transfer pricing rules of Member States and to ensure a common application of the arm’s length principle within the Union.
Article 2
Scope
This Directive applies to taxpayers that are registered in, or subject to, tax in one or more Member States, including permanent establishments in one or more Member States.
Article 3
Definitions
For the purposes of this Directive, the following definitions apply:
(1) ‘arm’s length principle’ means the international standard that prescribes that associated enterprises must transact with each other as if they were independent third parties. In other words, the transactions between two associated enterprises should reflect the outcome that would have been achieved if the parties were not related i.e. if the parties were independent of each other and the outcome (price or margins) was determined by (open) market forces.
(2) ‘arm’s length result’ means the outcome of a controlled transaction if the conditions made or imposed between the associated enterprises in their commercial or financial relations had been those which would have been made between independent enterprises.
(3) ‘arm’s length range’ means a range of figures that is acceptable for establishing whether the conditions of a controlled transaction are at arm’s length and that are derived from applying the same transfer pricing method to multiple comparable data;
(4) ‘permanent establishment’ means a fixed place of business, as defined under the relevant bilateral convention on the avoidance of double taxation or, in absence thereof, in national law;
(5) ‘independent enterprises’ means enterprises that are not associated enterprises within the meaning of Article 5;
(6) ‘primary adjustment’ means an upward adjustment made to a company’s taxable profits by a tax administration in a first jurisdiction as a result of applying the arm’s length principle to transactions involving an associated enterprise in a second tax jurisdiction;
(7) ‘corresponding adjustment’ means a downward adjustment to a company’s taxable profits made by the tax administration in a second jurisdiction as a consequence of a primary adjustment made by the tax administration in a first jurisdiction, so that the allocation of profits by the two jurisdictions is consistent;
(8) ‘compensating adjustment’ means an adjustment in which the taxpayer reports a transfer price for tax purposes that is, in the taxpayer’s opinion, an arm’s length price for a controlled transaction, even though this price differs from the amount actually charged between the associated enterprises;
(9) ‘comparable uncontrolled price method’ means a transfer pricing method that compares the price for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances;
(10) ‘resale price method’ means a transfer pricing method based on the price at which a product that has been purchased from an associated enterprise is resold to an independent enterprise; the resale price being reduced by the resale price margin and the result, after subtracting the resale price margin, can be regarded, after adjustment for other costs associated with the purchase of the product, e.g. custom duties, as an arm’s length price of the original transfer of property between the associated enterprises;
(11) ‘cost plus method’ means a transfer pricing method using the costs incurred by the supplier of property (or services) in a controlled transaction; an appropriate mark-up is added to these costs, to make an appropriate profit in light of the functions performed (taking into account assets used and risks assumed) and the market conditions; the price, after adding the mark-up to the proper cost base, may be regarded as an arm’s length price of the original controlled transaction;
(12) ‘transactional net margin method’ means a transactional profit method that examines the net profit margin relative to an appropriate base, e.g. costs, sales, assets, that a taxpayer realises from a controlled transaction that it is appropriate to aggregate;
(13) ‘profit split method’ means a transactional profit split method that shows the relevant profits to be split for the associated enterprises from a controlled transaction (or controlled transactions that it is appropriate to aggregate) and then divides those profits between the associated enterprises on an economically valid basis that approximates the division of profits that would have been agreed at arm’s length;
(14) ‘comparability analysis’ means a comparison of a controlled transaction with an uncontrolled transaction;
(15) ‘controlled transaction’ means a transaction between two associated enterprises;
(16) ‘comparable uncontrolled transaction’ means a transaction between independent enterprises that is comparable to the controlled transaction under examination;
(17) ‘multinational enterprise group’ (‘MNE group’) means a multinational enterprise group of associated enterprises with business establishments in two or more jurisdictions;
(18) ‘OECD Transfer Pricing Guidelines’ means the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, endorsed by the OECD Council pursuant to the OECD Council Recommendation of the Council on the Determination of Transfer Pricing between Associated Enterprises [C(95)126/Final], and as amended in January 20, 2022 and included in Annex I, and any further amendments to these OECD Transfer Pricing Guidelines that the Union approved in the context of the OECD Committee on Fiscal Affairs via the adoption of a Union position under 218(9) TFEU;
(19) ‘cost contribution arrangement’ is a contractual arrangement among business enterprises to share the contributions and risks involved in the joint development, production or the obtaining of intangibles, tangible assets or services with the understanding that such intangibles, tangible assets or services are expected to create benefits for the individual businesses of each of the participants.
CHAPTER II
TRANSFER PRICING RULES
Article 4
General rule on the application of the arm’s length principle
1. Member States shall ensure that, where an enterprise engages in one or more commercial or financial cross-border transactions with an associated enterprise, such enterprise determines the amount of its taxable profits in a manner that is consistent with the arm’s length principle.
2. Member States shall ensure that, where the conditions made or imposed in commercial or financial cross-border transactions between associated enterprises are not consistent with the arm’s length principle, then any amount of profits that would have accrued to either one of the enterprises and been taxable to that enterprise in a Member State if the conditions of the transactions had been consistent with the arm’s length principle, but have not accrued to that enterprise due to the non-arm’s length conditions, are to be included in the taxable profits of that enterprise and taxed accordingly.
Article 5
Associated enterprises
1. For the purpose of this Directive, ‘associated enterprise’ means a person who is related to another person in any of the following ways:
(a) a person participates in the management of another person by being in a position to exercise a significant influence over ethe other person;
(b) a person participates in the control of another person through a holding that exceeds 25 % of the voting rights;
(c) a person participates in the capital of another person through a right of ownership that, directly or indirectly, exceeds 25 % of the capital;
(d) a person is entitled to 25 % or more of the profits of another person.
2. If more than one person participates in the management, control, capital or profits of the same person, as referred to in paragraph 1, all persons concerned shall be regarded as associated enterprises.
3. If the same persons participate in the management, control, capital or profits of more than one person, as referred to in paragraph 1, all persons concerned shall be regarded as associated enterprises.
4. For the purposes of paragraphs 1 and 2, a person shall mean both legal and natural persons. A person who acts together with another person in respect of the voting rights or capital ownership of an entity shall be treated as holding a participation in all of the voting rights or capital ownership of that entity that are held by the other person.
5. In indirect participations, the fulfilment of the criteria set out in point (b) and (c) of paragraph 1 shall be determined by multiplying the rates of holding through the successive tiers. A person holding more than 50 % of the voting rights shall be deemed to hold 100 % of the voting rights.
6. An individual, his or her spouse or recognised partner, in accordance with the applicable national law, and his or her lineal ascendants or descendants and his or her siblings shall be treated as a single person.
7. A permanent establishment shall be considered an associated enterprise of the enterprise of which it is a part of.
Article 6
Corresponding adjustments
1. When a primary adjustment is made, Member States shall ensure that they make a corresponding adjustment so as to prevent the double taxation if the following conditions are met:
(a) the Member State that was requested to perform the corresponding adjustment agrees that the primary adjustment is consistent with the arm’s length principle both in principle and as regards the amount;
(b) the primary adjustment results in the taxation of an amount of profits in another jurisdiction on which the associated enterprise in the Member State that was requested to perform the corresponding adjustment has already been subject to tax in such Member State;
(c) where a third country jurisdiction is involved, a tax treaty is in force to prevent economic double taxation.
2. Member States may grant a corresponding adjustment as a consequence of a mutual agreement procedure under a double tax treaty under the 1990 intergovernmental Convention on Elimination of Double Taxation (‘the Arbitration Convention’)36 or under Directive (EU) 2017/185237.
3. Notwithstanding paragraph 2, Member States shall ensure that a corresponding adjustment may be performed as a consequence of a taxpayer’s request in view of a primary adjustment made in another jurisdiction. The following procedure shall apply to the corresponding adjustments performed under this paragraph:
(a) the taxpayer’s request shall:
(i) indicate all factual and legal circumstances necessary to evaluate, under the arm’s length principle, the primary adjustment performed in the other jurisdiction;
(ii) provide a certificate (or equivalent document) attesting the definitive nature of the primary adjustment abroad; if the primary adjustment is still not definitive on the date of submission of the request, this is to be indicated along with the conditions for the adjustments to become definitive; the certificate of the definitive nature of the primary adjustment shall nonetheless be presented to the Member State concerned before the corresponding adjustment is granted.
(b) Member States shall declare the request admissible within 30 days by virtue of a notification to the taxpayer if all the information provided in paragraph 3, point (a), has been submitted. In the same timeframe, Member States shall notify the taxpayer of the lack of any necessary information and grant at least 30 days to provide it. If the taxpayer does not provide the requested information within the assigned deadline, the request may be rejected as inadmissible.
(c) Member States shall ensure that when the double taxation arises from a primary adjustment made in another Member State, the procedure is concluded within 180 days from the receipt of the taxpayer’s request with a reasoned act of acceptance or rejection.
(d) In the case of acceptance, Member States shall communicate to the tax authority of the other relevant jurisdiction the recognition of the corresponding adjustment.
(e) Member States shall ensure that, when the corresponding adjustment is not granted, the taxpayer is still able to pursue mutual agreement procedures under a double tax convention, the Arbitration Convention or Directive (EU) 2017/1852.
4. Notwithstanding paragraphs 2 and 3, Member States shall ensure that a corresponding adjustment may be made as a consequence of joint tax audits or other forms of international administrative cooperation when the following conditions are met:
(a) the relevant tax administrations agree on the determination of the arm’s length price;
(b) primary and corresponding adjustments are granted symmetrically for the same amount in all the relevant jurisdictions.
5. Notwithstanding paragraph 1, in the absence of a primary adjustment, Member States may perform a downward adjustment only if the following conditions are met:
(a) the downward adjustment is consistent with the arm’s length principle both in principle and as regards the amount;
(b) an amount equal to the downward adjustment is included in the profit of the associated enterprise in the other jurisdiction and taxed in both the Member State and the other jurisdiction and thus subject to double taxation;
(c) the Member State requested to perform the downward adjustment has communicated to the tax administration of the relevant jurisdiction the intention to perform a downward adjustment providing all the factual and legal circumstances necessary to evaluate the downward adjustment under the arm’s length principle.
Article 7
Compensating adjustment
Member States shall ensure that a compensating adjustment in the form of year-end adjustment initiated by the taxpayer is accepted if the following conditions are met:
(a) before recording the relevant transaction, or series of transactions, the taxpayer made reasonable efforts to achieve an arm's length outcome;
(b) the taxpayer makes the adjustment symmetrically in the accounts in all Member States involved;
(c) the taxpayer applies the same approach consistently over time;
(d) the taxpayer makes the adjustment before filing the tax return;
(e) the taxpayer is able to explain why its forecast did not match the result achieved.
Article 8
Identifying the commercial or financial relations
1. Member States shall ensure that the application of the arm's length principle starts with the identification and accurate delineation of, on the one side, the commercial and financial relations of the associated enterprises and, on the other, the actual transaction or transactions between the associated enterprises.
2. The identification and accurate delineation of the commercial and financial relations of the associated enterprises and the actual transaction(s) shall be based on the following aspects:
(a) a preliminary broad-based understanding of the industry sector in which the associated enterprises operate and of the factors affecting the performance of enterprises operating in that sector;
(b) an analysis of how each associated enterprise operates, to identify its commercial or financial relations with associated enterprises;
(c) an analysis of the economically relevant characteristics of the controlled transactions having regard to both their form and substance.
Article 9
Transfer pricing methods
1. Member States shall ensure that the arm's length price charged in a controlled transaction between associated enterprises is determined using one of the following transfer pricing methods:
(a) the comparable uncontrolled price method;
(b) the resale price method;
(c) the cost-plus method;
(d) the transactional net margin method;
(e) the profit split method.
2. In addition to those methods listed in paragraph 1, Member States shall allow for the application of any other valuation methods and techniques to estimate the arm’s length price only if it can be demonstrated in a satisfactory manner that:
(a) none of the methods referred to in paragraph 1 is appropriate or workable in the circumstances of the case;
(b) the selected valuation method or technique is consistent with the arm’s length principle and provides a more reliable estimate of the arm’s length result than the methods listed in paragraph 1.
Article 10
The most appropriate method rule
1. Member States shall ensure that the arm's length price is determined by applying the most appropriate transfer pricing method to the circumstances of the case.
2. The most appropriate transfer pricing method shall be selected from among the transfer pricing methods set out in Article 9, taking into consideration the following criteria:
(a) the respective strengths and weaknesses of the transfer pricing methods;
(b) the appropriateness of a transfer pricing method in view of the nature of the controlled transaction, determined in particular through an analysis of the functions undertaken by each enterprise in the controlled transaction, taking into account assets used and risks assumed;
(c) the degree of comparability between the controlled and uncontrolled transactions, including the reliability of comparability adjustments, if any, that may be required to eliminate differences between them;
(d) the availability of reliable information needed to apply the selected transfer pricing method.
Article 11
Comparability analysis
1. Member States shall evaluate whether a controlled transaction produces an arm's length result by comparing the conditions of the controlled transaction with the conditions that would have been set, had the associated enterprises been independent and had they undertaken a comparable transaction under comparable circumstances.
2. Member States shall ensure that the transactions under analysis are comparable. In order to determine whether two or more transactions are comparable, the following factors shall be considered, to the extent that they are economically relevant to the facts and circumstances of a transaction:
(a) the contractual terms of the transaction;
(b) the functions performed by each of the parties to the transaction, taking into account assets used and risks assumed, including how those functions relate to the wider generation of value by the MNE group to which the parties belong, the circumstances surrounding the transaction, and industry practices;
(c) the characteristics of the property transferred or of services provided;
(d) the economic circumstances of the parties and of the market in which the parties operate;
(e) the business strategies pursued by the parties.
3. An uncontrolled transaction is comparable to a controlled transaction if either of the following conditions is met:
(a) none of the differences (if any) between the transactions being compared or between the enterprises undertaking those transactions could materially affect the price in the open market;
(b) reasonably accurate adjustments can be made to eliminate the material effects of such differences.
4. Member States shall ensure that the search for comparable uncontrolled transactions is transparent and reproducible.
Article 12
Determination of the arm’s length range
1. Member States shall ensure that, when the application of the transfer pricing methods produces a range of values, the arm's length range is determined using the interquartile range of the results of the uncontrolled comparables.
2. The interquartile range is the range from the 25th to the 75th percentile of the results derived from the uncontrolled comparables.
3. Member States shall ensure that a taxpayer is not subject to adjustment if its results fall within the arm’s length range, unless it is proven that a specific different positioning in the range is justified by the facts and circumstances of the specific case.
4. Member Stats shall ensure that, if the results of a controlled transaction fall outside the arm's length range, an adjustment is made to the median of all the results unless it is proven that any other point of the range determines an arm’s length price taking into consideration the circumstances of the specific case. The median is the 50th percentile of the range of results of the comparable uncontrolled transactions.
Article 13
Transfer pricing documentation
1. Member States shall ensure that a taxpayer has sufficient information and analysis available to verify that the conditions of its transactions with associated enterprises are in accordance with Article 4(1) and should at least encompass the elements referred to in articles 8, 9, 10, 11 and 12.
2. The Commission shall be empowered to adopt delegated acts, in accordance with Article 18, in order to further supplement the rule referred to in paragraph 1 with regard to the documentation, by laying down common templates, setting linguistic requirements, defining the type of taxpayer to abide by these templates and the timeframes to be covered .
CHAPTER III
ORGANISATION
Article 14
Application of the arm’s length principle
1. Member States shall include in the national rules transposing the transfer pricing rules laid down in Chapter II of this Directive provisions that ensure that those transfer pricing rules are applied in a manner consistent with the OECD Transfer Pricing Guidelines.
2. The Council may lay down further rules, consistent with the OECD Transfer Pricing Guidelines, on how the arm’s length principle and the other provisions laid down in Chapter II of this Directive are to be applied in specific transactions to ensure more tax certainty and mitigate the risk of double taxation. Those specific transactions or dealings are the following:
(a) transfer of intangibles asset or rights in intangible assets between associated enterprises, including hard-to-value intangibles;
(b) the provision of services between associated enterprises, including the provision of marketing and distribution services;
(c) cost contribution arrangements between associated enterprises;
(d) transactions between associated enterprises in the context of business restructurings;
(e) financial transactions;
(f) dealings between the head office and its permanent establishments.
3. The rules referred to in paragraphs 2 shall be taken by means of Council implementing acts based on a proposal from the Commission.
CHAPTER IV
FINAL PROVISIONS
Article 15
Evaluation
1. The Commission shall examine and evaluate the application of this Directive every 5 years and submit a report on its evaluation to the European Parliament and to the Council. The first report shall be submitted by 31 December 2031.
2. Member States shall communicate to the Commission relevant information for the evaluation of this Directive with a view to improving the application of the arm’s length principle, to reducing double taxation as well as to combatting tax abuse, in accordance with paragraph 3.
3. The Commission shall, by means of implementing acts, specify the information to be provided by Member States in accordance with paragraph 2, and specify the format and the conditions of communication of that information. Those implementing acts shall be adopted in accordance with the examination procedure referred to in article 17.
4. The Commission shall keep the information communicated to it pursuant to paragraph 2 confidential in accordance with the provisions applicable to Union institutions and Article 16 of this Directive.
5. Information communicated to the Commission by a Member State under paragraph 2, as well as any report or document produced by the Commission using such information, may be transmitted to other Member States. The information shall be covered by the obligation of official secrecy and enjoy the protection extended to similar information under the national law of the Member State which received it.
Article 16
Data protection
1. Member States may process personal data for the purposes of applying this Directive. When processing personal data for the purposes of this Directive, the competent authorities of Member States shall be considered as controllers, within the meaning of Article 4(7) of Regulation (EU) 2016/679, within the scope of their respective activities under this Directive.
2. Information, including personal data, processed in accordance with this Directive shall be retained only for as long as necessary to achieve the purposes of this Directive, in accordance with each data controller’s national law on statute of limitations, but in any case no longer than 10 years.
Article 17
Committee procedure
1. The Commission shall be assisted by a Committee. That committee shall be a committee within the meaning of Regulation (EU) No 182/201438.
2. Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply.
Article 18
Exercise of delegation
1. The power to adopt the delegated act referred to in Article 13 shall be conferred on the Commission subject to the conditions laid down in this Article.
2. The delegation of power referred to in Article 13 may be revoked at any time by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of the delegated act if already in force.
3. Before adopting the delegated act, the Commission shall consult experts designated by each Member State in accordance with the principles laid down in the Inter-institutional Agreement on better law making of 13 April 2016.
4. As soon as it adopts the delegated act, the Commission shall notify it to the Council.
5. The delegated act adopted pursuant to Article 13 shall enter into force without delay and shall apply as long as no objection is expressed by the Council. The Council may object to the delegated act within two months of the notification of that act. That period shall be extended by two months at the initiative of the Council. In such a case, the Commission shall repeal the act immediately following the notification of the decision to object by the Council.
Article 19
Informing the European Parliament
The European Parliament shall be informed by the Commission of the adoption of delegated acts, of any objection formulated to them, and of the revocation of the delegation of powers by the Council.
Article 20
Transposition
1. Member States shall adopt and publish, by [31 December 2025]at the latest, the laws, regulations and administrative provisions necessary to comply with this Directive. They shall forthwith communicate to the Commission the text of those provisions.
They shall apply those provisions from [1 January 2026].
When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made.
2. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive.
Article 21
Entry into force
This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
Article 22
Addressees
This Directive is addressed to the Member States.