(2a)

(2b)

(3)

Where Member States apply or interpret the arm’s length principle differently , they create situations that could harm the internal market. Inconsistency in applicable transfer pricing rules not only could lead to double taxation but also allow for profit shifting and tax avoidance. Such inconsistency is a serious tax obstacle for businesses operating across borders , is likely to cause economic distortions and inefficiencies and has a negative impact on cross-border investment and growth .

(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.

(3a)

(3b)

(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 and reducing occurrences of double taxation as well as double non taxation.

(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 .

(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).

(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.

(6a)

(6b)

(7)

There may be legitimate reasons as to why a corresponding adjustment is not given or is less than the primary adjustment. In particular, Member States should not grant corresponding adjustments if: (i) the primary adjustment is not considered to be consistent with the arm’s length principle; (ii) the primary adjustment does not result in the taxation of an amount of profits in another jurisdiction on which the associated enterprise in the relevant Member State has already been subject to tax; and (iii) when a third country jurisdiction is involved, there is no tax treaty in place. In the absence of a primary adjustment, Member States may perform a downward adjustment only if: (i) the downward adjustment is consistent with the arm’s length principle: (ii) an amount equal to the downward adjustment is included in the profit of the associated enterprise in the other jurisdiction and therein subject to tax: and (iii) a communication on the intention to perform a downward adjustment has been sent to the relevant jurisdiction. The aim of the previous provisions is to ensure that: (i) Member States can preserve the right to assess whether the primary adjustment is at arm’s length; and (ii) there is neither double taxation nor double non-taxation. Member States should not create situations of double non-taxation.

(7)

There may be legitimate reasons as to why a corresponding adjustment is not given or is less than the primary adjustment. In particular, Member States should not grant corresponding adjustments if: (i) the primary adjustment is not considered to be consistent with the arm’s length principle; (ii) the primary adjustment does not result in the taxation of an amount of profits in another jurisdiction on which the associated enterprise in the relevant Member State has already been subject to tax; and (iii) when a third country jurisdiction is involved, there is no tax treaty in place. In the absence of a primary adjustment, Member States may perform a downward adjustment only if: (i) the downward adjustment is consistent with the arm’s length principle and not leading to double non-taxation ; (ii) an amount equal to the downward adjustment is included in the profit of the associated enterprise in the other jurisdiction and therein subject to tax; and (iii) a communication on the intention to perform a downward adjustment has been sent to the relevant jurisdiction. The aim of the previous provisions is to ensure that: (i) Member States can preserve the right to assess whether the primary adjustment is at arm’s length; and (ii) there is neither double taxation nor double non-taxation. Member States should not create situations of double non-taxation.

(13)

In order to minimise disputes 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.

(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.

(14)

In order to lower the compliance burden for taxpayers that operate cross-border within the Union 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 Union (33).

(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 Union (33). 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.

(16)

In order to create more certainty for taxpayers and mitigate the risk of double taxation, the possibility to establish further common transfer pricing binding rules by way of implementing acts is provided in this Directive. Those implementing 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. In view of the potential impact of such 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, implementing powers to adopt decisions under this Directive should be conferred on the Council, acting on a proposal from the Commission .

(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.

(16a)

(16b)

(17)

In order to evaluate the effectiveness 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.

(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.

(17a)

(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) 2018/1724 (34). 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.

(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) 2018/1724 (34). 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.

(21)

In order to lower the administrative burden for taxpayers, 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.

(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.

(1)

‘arm’s length principle’ means the international standard 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.

(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.

(18)

‘OECD Transfer Pricing Guidelines’ means the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, endorsed by the OECD Council pursuant to the OECD Council Recommendation of the Council on the Determination of Transfer Pricing between Associated Enterprises [C(95)126/Final], and as amended in January 20, 2022 and included in Annex I, and any further amendments to these OECD Transfer Pricing Guidelines that the Union approved in the context of the OECD Committee on Fiscal Affairs via the adoption of a Union position under 218(9) TFEU;

(18)

‘OECD Transfer Pricing Guidelines’ means the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, endorsed by the OECD Council pursuant to the OECD Council Recommendation of the Council on the Determination of Transfer Pricing between Associated Enterprises [C(95)126/Final], and as amended in 20 January 2022 and included in Annex I, and any further amendments to these OECD Transfer Pricing Guidelines 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;

(a)

a person participates in the management of another person by being in a position to exercise a significant influence over ethe other person;

(a)

a person participates in the management of another person by being in a position to exercise a significant influence over the other person;

(i)

indicate all factual and legal circumstances necessary to evaluate, under the arm’s length principle, the primary adjustment performed in the other jurisdiction;

(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 ;

(iia)

communicate, for each Member State concerned by the adjustment, the effective tax rate calculated within the meaning of Council Directive (EU) 2022/2523 (1a);

(b)

Member States shall declare the request admissible within 30 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 30 days to provide it. If the taxpayer does not provide the requested information within the assigned deadline, the request may be rejected as inadmissible.

(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.

(c)

Member States shall ensure that when the double taxation arises from a primary adjustment made in another Member State, the procedure is concluded within 180 days from the receipt of the taxpayer’s request with a reasoned act of acceptance or rejection.

(c)

Member States shall ensure that when the double taxation arises from a primary adjustment made in another Member State, the procedure is concluded within 200 days from the receipt of the taxpayer’s request with a reasoned act of acceptance or rejection. The procedure can be extended once by a period of 100 days if the taxpayer and the Member States concerned all agree to such extension.

(d)

In the case of acceptance, Member States shall communicate to the tax authority of the other relevant jurisdiction the recognition of the corresponding adjustment.

(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.

(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;

(a)

none of the differences (if any) between the transactions being compared or between the enterprises undertaking those transactions could materially affect the price in the open market;

(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;

(a)

transfer of intangibles asset or rights in intangible assets between associated enterprises, including hard-to-value intangibles;

(b)

the provision of services between associated enterprises, including the provision of marketing and distribution services;

(c)

cost contribution arrangements between associated enterprises;

(d)

transactions between associated enterprises in the context of business restructurings;

(e)

financial transactions;

(f)

dealings between the head office and its permanent establishments.

‘ (i)

the identification of the method used for determination of the transfer pricing or other valuation methods and techniques to estimate the arm’s length price as defined in Article 9 of Directive [2024/XX/XX on transfer pricing], and the reasoning behind applying such method, or the transfer price itself in the case of an advance pricing arrangement; ’