Proposed EU TP Directive: One step beyond

The proposed EU TP Directive (COM (2023) 529 final; 12.9.2023) is a bold move by the European Commission on a rocky road into the right direction: That is, incorporation of the arm’s length principle and key TP rules into EU law, strengthening the role and status of the OECD TP Guidelines, and working towards the harmonisation of TP regulations and the interpretation of the arm’s length principle among EU Member States.

From a corporate perspective, features like the suggested corresponding adjustment approach (article 6 TPD proposal), year-end adjustments (article 7 TPD proposal) or benchmarking and TP documentation features (cf. articles 12 and 13 TPD proposal) address highly relevant practical issues. Those features are rightfully targeted by the Commission with a view to improve the status quo and try managing compliance costs for companies and tax administrations, to support simplification and ultimately increase tax certainty and reduce double taxation and consequential TP disputes between taxpayers and tax administrations, as well as among tax administrations in European Member States.

I greatly enjoyed the learning opportunity at the 2024 WU Global Transfer Pricing Conference in Vienna to discuss the proposed TP Directive in the context of the BEFIT package publication (12 September 2023). Together with Prof. Dr. Xaver Ditz who prepared the excellent introductory overview and supported by our Co-chairs Raffaele Petruzzi and Rita Szudoczky , Mauro Faggion , Lara Janse , Alexander Hent and I discussed perceived benefits and weaknesses of the proposed TP Directive. It was invaluable to have Mauro Faggion on our panel, who is among the Commissions’ Policy Officers first-hand involved in the establishment of the proposed TP Directive. The ways and means to achieve the goals intended by the EU Commission may be debatable and will surely be further refined going forward. But the general direction is the right one:

Talking helps and doing nothing is not an advisable option. There is indeed ample room for improvement in the harmonisation of TP regulations in Europe (and on an international scale). And the odds to achieve a meaningful outcome may be better in an EU context as compared to even more complex decision-making processes in international bodies like the OECD, the Inclusive Framework, or the UN.