Brussels, 04/07/2014 (Agence Europe) - On Friday 4 July, the European Commission published a report and guidelines on three aspects of the treatment of transfer pricing transactions. Transfer pricing is the cost of transactions between two arms of a multinational company in different countries (the price charged for inter-company transactions).
The three aspects in question are risk management in dealing with transfer pricing, the application of secondary adjustments and the use of compensating adjustments. These guidelines are very relevant in the context of the ongoing OECD work on the Base Erosion and Profit Shifting project (BEPS). They are drawn from the work of the EU Joint Transfer Pricing Forum (JTPF), which was established by the Commission to improve the smooth functioning of the single market and ensure better corporate tax coordination.
The Commission says that the interpretation and application of the arm's length principle varies from company to company and tax office to tax office and the variations can lead to higher costs and red tape and even double taxation or non-taxation.
The Commission has sent recommendations to the member states about secondary adjustments. Where they are optional, the Commission recommends, in order to avoid double taxation, that they not be taxed. Where they are compulsory, it says measures should be introduced to avoid double taxation.
The Commission recommends that the member states accept the use of compensating adjustments offered by companies under certain conditions, including the requirement that the profits of the companies involved be calculated in a similar manner. (EL)