Brussels, 15/11/2005 (Agence Europe) - As already reported, the European Commission adopted a draft Code of Conduct on 10 November that would standardise the documentation that multinationals must provide to tax authorities on their pricing of cross-border intra-group transactions ("transfer pricing" documentation). The proposal, developed following work by the EU Joint Transfer Pricing Forum, would reduce significantly the tax complications that companies face when trading with associated enterprises in other Member States. For example, a German manufacturer makes a car for EUR 25000, selling it to its French subsidiary for EUR 30000, which then sells it to a customer for EUR 35000. The transfer price between the two companies is EUR 30000, with both the French and the German company making a profit of EUR 5000. This type of cross-border transaction among branches of multinationals has mushroomed in recent years, notes the Commission. Companies frequently complain at present about the onerous and divergent documentation obligations with which they have to comply in such cases in the different Member States involved. The Code would be a political commitment and would not affect the Member States' rights and obligations or the respective spheres of competence of the Member States and the Community. The Commission proposal is for a Code of Conduct for new standardised and partially centralised "EU Transfer Pricing Documentation". The documentation that multinational enterprises would have to file with tax administrations in order to report on their pricing for cross-border intra-group activities would consist of two main parts: One set of documentation (the "masterfile") should provide a “blueprint” of the company and its transfer pricing system that would be relevant and available to all EU Member States concerned. It would provide information such as a general description of the business and business strategy, of the transactions involving associated enterprises in the EU and of the enterprise's transfer pricing policy. Second, a set of standardised documentation ("country-specific documentation") for each of the specific Member States concerned with the intra-group transactions. This documentation would include information such as amounts of transaction flows within that country, contractual terms and the particular transfer pricing methods used and would only be available to the relevant Member State.
To cut costs, the masterfile would be in English (the international language) with translations only being made if requested by national tax authorities. The country-specific documentation would be in a language of the country in question.
The Commission says the EU Transfer Pricing Documentation should improve both the quality of the information provided by businesses and taxpayers' compliance with transfer pricing documentation requirements in EU Member States. It should thus reduce the risk for businesses of double taxation and exposure to documentation related penalties. At the same time it should lead to increased transparency regarding the group's transfer prices and thus facilitate the work of tax administrations.
The EU TPD would be optional for businesses. It would cover all group entities resident in the EU, including transactions between group entities resident in the EU and associated enterprises outside the EU (the latter on a voluntary basis).
The EU TPD will be submitted to the Council and probably examined under the Austrian Presidency. It was drafted by the EU Joint Transfer Pricing Forum in the field of company taxation from January 2004 to May 2005. A first code of conduct was adopted by the Council at the end of 2004 to avoid double taxation in transfer pricing (see EUROPE 8844). The new code of conduct can be found at: http://www.europa.eu.int/comm/taxation_customs/resources/documents/COM (2005)543_en.pdf