The European Tax Adviser Federation (ETAF), representing 215,000 regulated tax advisers, has raised concerns over the European Commission's proposed Transfer Pricing Directive

The European Tax Adviser Federation (ETAF), representing 215,000 regulated tax advisers, has raised concerns over the European Commission's proposed Transfer Pricing Directive, cautioning that it could escalate the administrative burden on companies. The directive, unveiled in September, aims to incorporate the OECD Transfer Pricing Guidelines into EU law, establishing a unified framework for applying the arm’s-length principle (ALP) to prevent double taxation for multinational entities. The ETAF particularly took issue with the broad definition of an 'associated enterprise' in Article 5 of the proposal, anticipating an expansion of transactions falling under the Transfer Pricing (TP) rules.

The ETAF argued that the proposed EU definition would necessitate additional TP documentation for more transactions, thereby increasing the administrative workload for companies rather than facilitating smoother transactions in the internal market. While acknowledging the importance of harmonizing ALP application across EU member states to prevent profit shifting and double taxation, the tax group expressed reservations. It noted the potential complexity and high compliance costs arising from individual member states' discretion in interpreting and applying the OECD Transfer Pricing Guidelines.

The ETAF acknowledged positive aspects of the proposal, recognizing its potential benefits for businesses engaged in cross-border transactions with associated enterprises. However, it stressed the need for clearer rules and quick corresponding adjustments for taxpayers in case of TP corrections. The tax group observed that many of the directive's provisions mirrored the OECD Transfer Pricing Guidelines, with some being "mere repetitions" and others representing "unjustified aggravations."

In offering recommendations, the ETAF suggested that the directive should closely align with the OECD Guidelines, refraining from rewording or exceeding them to avoid ambiguities, interpretation difficulties, and potential conflicts. The tax group emphasized the importance of clarity in the rules to facilitate businesses' understanding of the proposed framework.

Earlier in the year, Mauro Faggion, a seconded national expert at the European Commission, expressed cautious optimism about the TP proposal's acceptance by all 27 member states. He highlighted the EU's unanimity rule in direct taxation, requiring unanimous acceptance from all member states for the proposal to become enforceable. The Transfer Pricing Directive is slated to take effect from January 1, 2026.

By fLEXI tEAM