EC Publishes Guidance On Transfer Pricing

by Ulrika Lomas, for LawAndTax-News.com, Brussels

27 February 2007

The European Commission announced on Monday that it has adopted a Communication based on the work carried out by the EU Joint Transfer Pricing Forum.

Transfer pricing rules aim to ensure that in cross-border situations, related companies allocate the correct tax base to the countries in which they trade.

The Commission and the Forum consider that Advance Pricing Agreements (APAs) are an appropriate tool to increase legal certainty and to lessen transfer pricing burdens on taxpayers. Therefore the Commission has drafted guidelines for APAs which will make it easier for companies to avoid some of the problems caused by different transfer pricing rules in Member States.

APAs are agreements between the tax administrations of EU Member States concerned, defining how and where future transactions between related taxpayers established in two or more Member States will be taxed.

They can be an effective tool for avoiding disputes between taxpayers and tax administrations, since tax administrations, with the agreement of the companies involved, have agreed in advance a mechanism for calculating how the profits of the companies will be split.

Commenting on the publication of the guidelines, Taxation and Customs Union Commissioner László Kovács announced yesterday that:

"I am very pleased with the works carried out in cooperation with tax administrations and private sector on transfer pricing issues. The guidelines we propose will facilitate advance agreements between tax administrations and tax payers and therefore increase the legal certainty for taxpayers."

He concluded:

"I now urge Member States to quickly implement in their legislation or administrative rules the recommendations included in the Guidelines."

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