Brussels, 28/04/2004 (Agence Europe) - The European Commission has proposed a code of conduct for avoiding double taxation of companies resulting from intra-group operations. This code defines common procedural rules for settling disputes between companies and tax authorities or between the tax authorities of different countries by setting cross-border transaction prices for companies. This code is based on the forum's recommendations on transfer pricing of July 2002.
The code of conduct sets out procedural deadlines. It sets up a starting point: 1) for the three-year period which is the deadline for a company suffering double taxation; 2) the starting point of the two-year period during which Member States' tax administrations must attempt to reach mutual agreement. The code outlines procedures for reaching an amicable or arbitrary decision between the tax authorities and imposes a suspension of tax collection during cross-border dispute resolution procedures.
The Code would ensure a more effective and uniform application by EU Member States of the 1990 Arbitration Convention. This convention has been suspended since 2000 because Italy and Portugal did not ratify the protocol extending it.
The Commission recalls that companies can only use as a base the provisions of double taxation bilateral agreements signed by Member States, non-binding agreements. It also recalls that the Convention is not applied between Greece, Austria, Sweden and Finland, as Athens has not ratified the convention for accession by the three Member States to the Convention. In order to avoid this kind of situation happening again, the Commission calls on Member States to swiftly sign and ratify extension of the Convention to the ten entrant countries, at the latest two years after accession.
We recall that the transfer price is an essential element in sharing the fiscal result of enterprises. Several Member States have established detailed rules to determine the value of intra-company trade taking inspiration from the rules of the OECD (France, Germany, the United Kingdom, the Netherlands, Belgium, Denmark, Spain, Portugal and Poland). The aim is above all to avoid systematic under-capitalisation of a branch of a group while respecting the Court of Justice case law allowing for taxation competition between Member States.