Changes from plenary report to adopted text

(Special legislative procedure – consultation)

The European Parliament,

– having regard to the Commission proposal to the Council (COM(2023)0529),

– having regard to Article 115 of the Treaty on the Functioning of the European Union, pursuant to which the Council consulted Parliament (C90339/2023),

– having regard to Rule 82 of its Rules of Procedure,

– having regard to the report of the Committee on Economic and Monetary Affairs (A9-0066/2024),

1. Approves the Commission proposal as amended;

2. Calls on the Commission to alter its proposal accordingly, in accordance with Article 293(2) of the Treaty on the Functioning of the European Union;

3. Calls on the Council to notify Parliament if it intends to depart from the text approved by Parliament;

4. Asks the Council to consult Parliament again if it intends to substantially amend the Commission proposal;

5. Instructs its President to forward its position to the Council, the Commission and the national parliaments.

Recital 2 a (new): (2a) Base erosion and profit shifting (BEPS) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax. Transfer pricing, while currently needed to determine where profits are reported, has also been misused for reducing the tax liabilities of firms in countries with higher tax rates leading to profit shifting. The arm’s length principle should be applied in Member States, and by taxpayers, in a manner that guarantees greater tax certainty for taxpayers and minimises opportunities for profit shifting.

Recital 2 b (new): (2b) The long-term solution to effectively address tax avoidance and guarantee a minimum level of effective taxation for MNE groups should be a system of formulary apportionment for the benefit of all Member States.

Recital 3: (3) Where Member States apply or interpret the arm’s length principle in a significantly different way, they create situations that could harm the internal market and lead to unnecessary costs for businesses in the case of disputes, as well as instigate harmful tax competition, attract aggressive tax avoidance structures, form illegal state aid and reduce revenues from Member States. Inconsistency in applicable transfer pricing rules not only could lead to double taxation but also allow for profit shifting tax avoidance and double non-taxation. Such significant inconsistencies can present a serious threat to tax revenues, tax morale and the limited capacities of tax administrations. In addition, such inconsistencies lead to obstacles for businesses, especially SMEs, operating across borders and are likely to cause economic distortions and inefficiencies and have a negative impact on cross-border investment. Furthermore, the Commission should ensure that this Directive does not create any inconsistency with the latest OECD guidelines, including the Amount A and Amount B of Pillar One that aim to simplify existing transfer pricing rules.

Recital 3 a (new): (3a) Tax administrations, however, should consider that associated enterprises may be genuine in accurately determining a market price in the absence of market forces or when adopting a particular commercial strategy.

Recital 3 b (new): (3b) At the beginning of the BEPS project in 2013, OECD estimated, while acknowledging the methodological and data limitations, that the scale of global corporate income tax revenue losses due to BEPS practices, including transfer pricing manipulation, could be between USD 100 to 240 billion annually1a. / 1a https://www.oecd.org/tax/beps-project-explanatory-statement-9789264263437-en.htm

Recital 4: (4) This Directive lays down rules to ensure a common application of the arm’s length principle across the Union with the aim of increasing tax certainty, reducing occurrences of double non-taxation as well as double taxation, reducing tax compliance costs and litigation especially for taxpayers that operate cross-border within the Union, and avoiding tax abuse.

Recital 6: (6) To ensure the mitigation of double taxation, Member States should have adequate mechanisms in place to enable them, when a primary adjustment is made in another Member State or third country jurisdiction, to make a corresponding adjustment. In particular, Member States should have the possibility to perform corresponding adjustments and should not limit the granting of such an adjustment in the context of mutual agreement procedures (MAPs) but also as a result of: (i) a “fast-track” procedure to be concluded in 180 days without the need to open a MAP when there is no doubt that the primary adjustment is well founded; or (ii) joint audits or other forms of international cooperation such as multilateral risk assessment programs like the European Trust and Cooperation Approach (ETACA) and the International Compliance Assurance Programme (ICAP). To that end, Member States should use all procedures and arrangements provided by the Directive on administrative cooperation (DAC), especially the third and sixth revision that cover the exchange of information related to Advance Pricing Arrangements and the exchange of information on reportable cross-border arrangements which have been reported by intermediaries or by the relevant taxpayer.

Recital 6 a (new): (6a) Owing to the potential increase in litigation, this Directive requires the introduction of fast-track mechanisms which can respond to all demands. The arbitration system needs to be quick so that agreements can be reached, thereby avoiding problems and disputes that may arise.

Recital 6 b (new): (6b) The presence of accessible dispute resolution mechanisms is of vital importance for cross-border trade, thus ensuring tax certainty and eliminating double taxation for taxpayers. Strengthening the use of Mutual Agreement Procedures (MAPs) as outlined in the EU Arbitration Convention can speed up the resolution of cases within shorter timeframes. To that end, Member States are invited to allocate adequate resources so that deadlines are met and MAPs can become an effective tool to eliminate double taxation.

Recital 13: (13) In order to minimise disputes, reduce related costs to businesses, and ensure a common approach across the Union, this Directive further provides that a taxpayer should not be subject to adjustment when its results fall within the interquartile range unless the tax administration or the taxpayer proves that a specific different positioning in the range is justified by the facts and circumstances of the specific case. When the results of a controlled transaction fall outside the arm's length range, tax administrations should be required to make an adjustment to the median of all the results unless the taxpayer or the tax administration proves that any other point of the range determines a more reliable arm’s length price in a given case.

Recital 14: (14) In order to lower the compliance burden for taxpayers that operate cross-border within the Union, as well as to address the risk of tax avoidance, a common approach towards the documentation on transfer pricing should further be introduced. One standard template, rules on content and linguistic arrangements, timeframes and which taxpayers should be in scope would bring simplicity and potential cost savings taking into account chapter V ‘Documentation’ of the OECD Transfer Pricing Guidelines and the Code of conduct on transfer pricing documentation for associated enterprises in the European Union33. Harmonised interpretation of those terms at Union level is also necessary to facilitate application of this Directive by tax administrations and businesses. Therefore, Member States should empower their tax administrations to deal efficiently with the common documentation efforts on transfer pricing.

Recital 16: (16) In order to create more certainty for taxpayers and mitigate the risk of double non-taxation and double taxation and having regard to the potential impact of relevant measures on national executive and enforcement power regarding direct taxation, the exercising of taxing rights allocated under bilateral or multilateral tax conventions that prevent double taxation or double non-taxation and in view of potential impact on Member States’ tax bases, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission in order to establish further common transfer pricing binding rules. Those delegated acts should provide taxpayers with a clear view of what tax authorities in the Union would consider to be acceptable to be used for specified transactions and provide so-called ‘safe harbours’ that bring down the compliance burden and the number of disputes.

Recital 16 a (new): (16a) As transfer pricing is a matter that evolves over time, it will be essential to continuously monitor the need for adjustments of this Directive with the objective of guaranteeing the uniformity of transfer pricing methodologies within the Union and on the global stage.

Recital 16 b (new): (16b) The EU Joint Transfer Pricing Forum has offered practical solutions to the challenges posed by transfer pricing practices in all Member States. The re-establishment of that forum with a broader mandate allows national experts from the Member States, together with representatives of the business community, academics and civil society, to support the Commission, which may result in legislation capable of achieving the stated objective of increasing security for business in the Union. A joint view of taxpayers and tax authorities provides a more comprehensive point of view when it comes to finding practical solutions.

Recital 17: (17) In order to evaluate the effectiveness and the impact of the new rules set out in this Directive the Commission should prepare an evaluation on the basis of the information provided by Member States and other available data, accompanied by a legislative proposal, if appropriate.

Recital 17 a (new): (17a) The Commission should review the application of this Directive for MNE groups that fall under the scope of the proposal for a Council Directive on Business in Europe: Framework for Income Taxation (BEFIT).

Recital 18: (18) To allow businesses to directly enjoy the benefits of the internal market without incurring an unnecessary additional administrative burden, information on the tax provisions set out in this Directive should be made accessible through the Single Digital Gateway (‘SDG’) in accordance with Regulation (EU) 2018/172434. The SDG provides a one-stop-shop for cross-border users for the online provision of information, procedures and assistance services relevant to the functioning of the internal market. That one-stop shop should be intuitive, easy to access and equipped with the necessary tools so that it does not create a new bureaucratic barrier for businesses. The positive experience of the one-stop shop for Value Added Tax (VAT) is a good example of how such a shop should be designed to work properly.

Recital 21: (21) In order to lower the administrative burden for taxpayers and the risk of tax avoidance, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission in respect of the transfer pricing documentation, by laying down common templates, setting linguistic requirements, defining the type of taxpayer to abide by these templates and the timeframes to be covered. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement on Better Law-Making of 13 April 2016. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

Article 1 – paragraph 1: This Directive lays down rules to harmonise transfer pricing rules of Member States and to ensure a common application of the arm’s length principle within the Union with the objective of simplifying compliance for companies whilst ensuring enforcement of tax rules within the Union.

Article 3 – paragraph 1 – point 1: (1) ‘arm’s length principle’ means the international standard pursuant to Article 9 of the OECD Model Tax Convention that prescribes that associated enterprises must transact with each other as if they were independent third parties. In other words, the transactions between two associated enterprises should reflect the outcome that would have been achieved if the parties were not related i.e. if the parties were independent of each other and the outcome (price or margins) was determined by (open) market forces.

Article 3 – paragraph 1a (new): The Commission shall be empowered to adopt delegated acts in accordance with Article 18 in order to incorporate any further amendments to OECD Transfer Pricing Guidelines, as defined in point (18) of this Article, that the Member States approved in the context of the OECD Committee on Fiscal Affairs or the Union approved via the adoption of a Union position under Article 218 TFEU.

Article 5 – paragraph 1 – point a: (a) a person participates in the management of another person by being in a position to exercise a significant influence over the other person;

Article 6 – paragraph 3 – point a – point i: (i) indicate all factual and legal circumstances necessary to evaluate, under the arm’s length principle, the primary adjustment performed in the other jurisdiction, including relevant transfer pricing documentation communicated to the Member States;

Article 6 – paragraph 3 – point a – point ii a (new): (iia) communicate, for each Member State concerned by the adjustment, the effective tax rate calculated within the meaning of Council Directive (EU) 2022/25231a; / 1a Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union (OJ L 328, 22.12.2022, p. 1).

Article 6 – paragraph 3 – point b: (b) Member States shall declare the request admissible within 40 days by virtue of a notification to the taxpayer if all the information provided in paragraph 3, point (a), has been submitted. In the same timeframe, Member States shall notify the taxpayer of the lack of any necessary information and grant at least 40 days to provide it. If the taxpayer does not provide the requested information within the assigned deadline, the request shall be rejected as inadmissible.

Article 6 – paragraph 3 – point d: (d) In the case of acceptance, Member States shall communicate immediately to the tax authority of the other relevant jurisdiction the recognition of the corresponding adjustment.

Article 6 – paragraph 3 a (new): 3a. For the purpose of paragraphs 1, 2 and 3, Member States shall use all available procedures and arrangements provided by the Directive on Administrative Cooperation (DAC).

Article 6 – paragraph 5 – point a a (new): (aa) the downward adjustment does not lead to double non-taxation meaning the downward adjustment is included in the taxable profits of the associated enterprise in the other jurisdiction;

Article 11 – paragraph 3 – point a: (a) none of the differences (if any) between the transactions being compared or between the enterprises undertaking those transactions could materially affect the price or margin in the open market;

Article 14 – paragraph 2: 2. The Commission shall be empowered to adopt delegated acts in accordance with Article 18 to lay down further rules, consistent with the latest internationally recommended Transfer Pricing Guidelines, from either the OECD or the United Nations, on how the arm’s length principle and the other provisions laid down in Chapter II of this Directive are to be applied in specific transactions to ensure more tax certainty and mitigate the risk of double non-taxation and double taxation, and reduce tax disputes and tax abuse. / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted)

Article 14 – paragraph 2 a (new): 2a. The Commission may adopt delegated acts in accordance with Article 18 to lay down further rules, such as the introduction of safe harbours, to simplify the application of the arm’s length principle in the Union, to ensure more tax certainty and mitigate the risk of double non-taxation and double taxation, and to reduce tax disputes and tax abuse.

Article 14 – paragraph 2 b (new): 2b. The Commission may adopt a delegated act in accordance with Article 18 laying down rules to integrate in this Directive the proposed simplified approach to transfer pricing compliance for distribution and manufacturing activities as referred to in Council Directive XX/XX/EU on Business in Europe: Framework for Income Taxation (BEFIT).

Article 14 – paragraph 3: deleted

Article 14 b (new): Article 14b / Extension of the European Trust and Co-operation Approach (ETACA) initiative / 1. The scope of the European Trust and Cooperation Approach (ETACA) shall include transfer pricing reviews of specific intra-Union flows by participating Member States and not only low value-added transactions, as is currently the case. / 2. Member States are invited to establish a link between the ETACA and APAs to ensure the ETACA acts as a fast-track for finding stable solutions when problems arise during the review process.

Article 15 – paragraph 1: 1. Every three years, the Commission shall examine and evaluate the application, the impact as well as the interplay of this Directive with the latest OECD or UN guidelines and submit a report on its evaluation to the European Parliament and to the Council, to be accompanied, if appropriate, by a legislative proposal. The first report shall be submitted by 31 December 2029. The Commission may deviate from those timelines when new guidelines on Transfer Pricing are agreed at OECD or UN level.

Article 15 – paragraph 2: 2. Member States shall communicate to the Commission relevant information for the evaluation of this Directive with a view to improving the application of the arm’s length principle, to reducing double non-taxation and double taxation as well as to combatting tax abuse and tax disputes, in accordance with paragraph 3.

Article 15 – paragraph 5: 5. Information communicated to the Commission by a Member State under paragraph 2, as well as any report or document produced by the Commission using such information, may be transmitted to other Member States and the European Parliament. The information shall be covered by the obligation of official secrecy and enjoy the protection extended to similar information under the national law of the Member State which received it.