EC Revises Code On Transfer Pricing Adjustments

by Ulrike Lomas, Tax-News.com, Brussels

15 September 2009

The EU Commission and the EU Joint Transfer Pricing Forum have instigated several improvements aimed at the elimination of double taxation linked to transfer pricing adjustments.

By monitoring past problems, it has been possible to clarify and provide common interpretation of the Arbitration Convention (AC) provisions incorporated in the Code of Conduct. In particular these improvements allow the timeframe for case resolution to be reduced so that many more cases are completed within the three-year target.

"Businesses are devoting more and more resources to transfer pricing compliance; I am pleased with the work achieved by the expert group in the area of dispute resolution and with the revised Code of Conduct we propose, which will further facilitate elimination of double taxation of company profits and ensure a more consistent enforcement of transfer pricing rules," said László Kovács, Commissioner for Taxation and Customs Union. "I urge Member States to endorse the recommendations of the revised Code and to implement them in their legislation or administrative practices."

The proposed common interpretation covers the following topics:

• serious penalties;
• the scope of the AC (triangular transfer pricing and thin capitalization cases);
• interest charged/credited by tax administrations when a case is dealt with under the AC;
• the functioning of the AC (as regards rules about the deadline for the setting-up of the Advisory Commission and criteria for establishing the independence of arbitrators);
• the date from which a case is admissible under the AC; and
• the interaction of the AC and domestic litigation.

Double taxation arises from disputes between taxpayers and tax administrations over what amount of profit should be taxed and where the tax should be paid. In 2002, the Commission created the EU Joint Transfer Pricing Forum on business taxation (IP/02/1105) in order to reduce the high compliance costs and to eliminate the double taxation that often arises in the case of cross-border, intra-group transactions. The Forum is composed of experts from national tax administrations and the business sector, under an independent chairman. The mandate of the Forum runs until March 2011.

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