The EU Joint Transfer Pricing Forum (“EU JTPF” or “the Forum”) recently published its report “A coordinated approach to transfer pricing controls within the EU”, which aims to address the lack of guidance on bilateral and multilateral transfer pricing audits. The objective of the report, inspired by a number of successful pilot cases, is to establish recommendations for a more coordinated approach within the EU, and to identify tools to improve the current EU framework in this respect. The EU JTPF, which is composed of representatives of the EU Member States, non-government organizations and business, operates on the basis of consensus to propose to the European Commission pragmatic, non-legislative recommendations on transfer pricing matters on an EU level.
There is a notable increase in the number and detail of multilateral transfer pricing audits in the EU. Belgium is increasingly actively involved in international exchange of information and multilateral audits as regards transfer pricing.
The report highlights best practices for reducing companies’ compliance costs and for preventing double taxation. After all, a multilateral audit involving all affected Member States and having a joint conclusion on facts and transfer pricing outcome would reduce the need for mutual agreement procedures (MAP) or reliance on the EU Arbitration Convention.
Key recommendations from the EU JTPF
- Between tax administrations, exchange of information and cooperation should be used to ensure that an audit is performed in an effective (concluding the audit without the need for further procedural steps, e.g. a MAP) and efficient (minimize resources and time required of both taxpayers and tax administrations) way.
- Between tax administrations and taxpayers, a cooperative approach should be built on dialogue and trust. This entails the taxpayer having the right to be heard and being involved in/updated on the auditing activities. Taxpayers should also be transparent and share information with the tax authorities involved in a timely manner.
- Member States are encouraged to implement legislation that permits the active presence of visiting foreign officials (which is currently not the case in Belgium).
- Member States should participate in coordinated transfer pricing controls unless their refusal is based on a reasonable explanation (and such explanation should be given).
- An audit plan should be agreed and signed for each transfer pricing control. The audit plan would normally identify (among other items) the scope of the audit (taxpayers and tax periods under audit), the transactions/dealings under audit, the milestones, the working language, and the rules for carrying out ‘auditors-in-presence’ activity.
- Member States should agree a Memorandum of Understanding (“MoU”), in case they wish to establish sustained coordinated transfer pricing control programmes. The MoU serves as a framework setting out the main principles and practicalities that govern future cooperation in such audits.
- Coordinated transfer pricing controls should be finalized with a concluding report. Tax administrations should endeavour to arrive at a jointly accepted description of the facts and circumstances and subsequent transfer pricing analysis.
The EU Commission will now communicate the Report to the Council, the European Parliament and the European Economic and Social Committee.
For further questions on how this may affect your business, please reach out to your PwC transfer pricing team.