Taxation and customs union

Joint Transfer Pricing Forum

The EU Joint Transfer Pricing Forum (JTPF) assists and advises the European Commission on transfer pricing tax matters.

 

What's new?

May 2017

On  8 May 2017, the Director-General for Taxation and Customs Union renewed the mandate of the organisations appointed in May 2015 for a new mandate of two years starting on 1 April 2017.

March 2017

In March 2017 the JTPF agreed the Report on the Use of Comparables in the EU. The report establishes best practices and pragmatic solutions by issuing various recommendations for both taxpayers and tax administrations in the EU and aims at increasing in practice the objectivity and transparency of comparable searches for transfer pricing.

December 2016

In December 2016 the European Commission accepted two studies which were launched in the area of transfer pricing:

The Study on Comparable data used for Transfer Pricing in the EU provides an overview and assessment of the availability and quality of market data ('comparables') used for transfer pricing purposes in the EU. Furthermore it assesses and evaluates situations characterising the lack and/or non-reliability of comparable data as well as the situation for pan-European comparable searches.

The Study on the Application of Economic Valuation Techniques for Determining Transfer Prices of Cross Border Transactions between Members of Multinational Enterprise Groups in the EU provides an overview on how valuation techniques can practically and most efficiently be used for transfer pricing purposes in the EU, particularly for transactions involving intangibles. It investigates the differences between valuations for transfer pricing purposes and valuations for other purposes, and the state of play in terms of experience gathered by EU Member States and trade partners.

June 2015

 Background

In the EU and unlike indirect taxes, direct taxes (income and corporate taxes) are not to be harmonized. However, Article 115 of the treaty on the Functioning of the European Union (TFEU) provides that Directive can be issued for the approximation of the respective laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the common market. In any event, national tax rules must respect the fundamental freedoms provided for by the TFEU.

Since the founding of the European Communities, company taxation has received particular attention as an important element for the establishment and the completion of the Internal Market. While some areas of direct taxation are, Transfer Pricing ('TP') legislation in the EU is not harmonized by way of legislative acts in form of directives.

The current situation as regards application of the TP rules is such that all the EU Member States have adopted or are following the OECD TP standard, i.e. the Arm’s Length Principle (ALP) or equivalent. 

The JTPF was informally set up in June 2002 and met the first time in October 2002. It works within the framework of the OECD TPG and operates on the basis of consensus to propose to the Commission pragmatic, non-legislative solutions to practical problems posed by transfer pricing practices in the EU.

Since 2002, a series of initiatives have been launched at EU level to create a common TP framework for co-ordinating and making these domestic rules work effectively and efficiently togeter. An EU intervention is justified as regards taxation of intragroup transactions (TP) insofar as the Internal Market can be affected by diverging approaches, resulting in too many, complex or sophisticated rules at each EU Member State’s level, which then create significant costs and administration burden for both tax administrations and taxpayers or be a source of profit shifting as taxpayers can exploit loopholes when rules diverge.

Consequently, the EU Commission has initiated a set of co-ordinated measures, either guidance or recommendations, all subsequently endorsed by the EU Council. They now constitute a recognised congruent and efficient enabling TP framework in the EU. They cover all steps of the TP process, from the determination and documentation stage, the TP audit and, finally, the dispute resolution phase.

 

 Operation

The JTPF works within the framework of the OECD Transfer Pricing Guidelines and operates on the basis of consensus to propose to the Commission pragmatic, non-legislative solutions to practical problems posed by transfer pricing practices in the EU.

The work of the JTPF is divided into 2 main areas:

  • the Arbitration Convention (AC) - a specific dispute resolution mechanism for transfer pricing cases
  • other transfer pricing issues identified by the JTPF and included in its work programme.

In June 2015 the JTPF adopted its Rules of Procedure for the mandate 2015 – 2019

 

Members

1. JTPF composition

The JTPF has 1 representative from each Member State's tax administrations and 18 non-government organisation members. It is chaired by an independent chairperson.

Representatives from candidate countries (Albania, FYR Macedonia, Iceland, Montenegro, Serbia and Turkey) and from the OECD may be invited to the JTPF as observers.

On 12 May 2015, the Director-General for Taxation and Customs Union appointed the members and the chairperson for a new mandate of two years starting on 1 April 2015.

On  8 May 2017, the Director-General for Taxation and Customs Union renewed the mandate of the organisations appointed in May 2015 for a new mandate of two years starting on 1 April 2017.

Chair

CMS Bureau Francis Lefebvre

Non-government members

BDI (Federation of German Industries)
BEPS Monitoring Group
Brose Fahrzeugteile GmbH & Co KG
Deloitte
EATLP (European Association of Tax Law Professors)
Eurodad
Financial Transparency Coalition
Grant Thornton Société d'Avocats
International Tax Center Leiden (Transfer Pricing Research Center)
A.P. Moller Maersk
NERA Economic Consulting
Network of Member Firms of PwC
Plansee Group
Prysmian Group
Repsol Group
TPCA (Transfer Pricing Centre Association – Stowarzyszene Centrum Cen Transferowych)
Volvo

 

2. Member States’ Transfer Pricing Profiles
 

Austria Germany (available soon) Netherlands
Belgium Greece Poland
Bulgaria Hungary Portugal
Croatia Ireland Romania
Cyprus Italy Slovakia
Czech Republic Latvia Slovenia
Denmark Lithuania Spain
Estonia Luxembourg Sweden
Finland Malta United Kingdom
France

 

3. Member States' Statistics

The JTPF monitors regularly the number of pending Mutual Agreement Procedures (MAPs) under the Arbitration Convention and the number of Advance Pricing Agreements (APA). Data is collected from Member States on an annual basis after year end. The statistics for the last two years are published below. For statistics relating to earlier years, please refer to the "Meetings" section.

Statistics on pending MAPs under the Arbitration Convention at the end of 2014

Statistics on pending MAPs under the Arbitration Convention at the end of 2015

Statistics on Advance Pricing Agreements in 2014

Statistics on Advance Pricing Agreements in 2015

 

Achievements

1. Code of conduct for the effective implementation of the AC

On 23 April 2004, the Commission adopted Communication 2004/297 on the work of the JTPF in business taxation (October 2002 - December 2003) and on a code of conduct for the effective implementation of the Arbitration Convention . On 7 December 2004 the Council adopted the proposed code of conduct.

The Code of Conduct applies in cases where an EU Member State's tax administration increases the taxable profits of a company from its cross-border intra-group transactions, for example by making a transfer pricing adjustment.

It ensures a more effective and uniform application by all Member States of the 1990 (Arbitration Convention 90/436/EEC) by establishing common procedures concerning:

  • the starting point of the 3 year period which is the deadline for a company suffering double taxation to present its case to the relevant Member State's tax administration
  • the starting point of the 2 year period during which Member States' tax administrations must attempt to reach an agreement that eliminates the double taxation that is the subject of the complaint
  • the arrangements to be followed during this mutual agreement procedure (the practical operation of the procedure, transparency and taxpayer participation)
  • the practical arrangements for the 2nd phase of the dispute resolution procedure provided for in the AC that must follow if there is no mutual agreement between the tax authorities within 2 years (i.e. the establishment and functioning of the advisory commission that must then arbitrate in the case).

The Code contains a recommendation to EU Member States to suspend tax collection during cross-border dispute resolution procedures. It also recommends that Member States should extend those rules to double tax conventions between EU Member States.

Revised code of conduct

On 14 September 2009, the Commission adopted Communication 2009/472 on the work of the JTPF from March 2007 to March 2009 and a related proposal for a revised code of conduct for the effective implementation of the Arbitration Convention. On 22 December 2009, the Council adopted the proposal.

The revised Code of Conduct is the result of a monitoring exercise carried out by the JTPF to improve the functioning of the AC by providing common interpretations on the following topics:

  • serious penalties
  • scope of the AC (triangular transfer pricing and thin capitalisation cases)
  • interest charged/credited by tax administrations when a case is dealt with under the AC
  • functioning of the AC (as regards rules about the deadline for the setting-up of the Advisory Commission and criteria for establishing the independence of arbitrators)
  • the date from which a case is admissible under the AC and the inter-action of the AC and domestic litigation.

In April 2015 the Forum agreed on a Report on Improving the Functioning of the Arbitration Convention  including a revised Code of Conduct for the effective implementation of the Arbitration Convention.
The report and the revised Code of Conduct are the result of a monitoring exercise carried out by the JTPF and provide clarification inter alia on the following topics:

  • Application of the AC in certain cases (absence of tax payment, changes in the status of the taxpayer)
  • Transparency in cases when access to the AC is denied
  • Implications of the new Article 7 OECD Model Tax Convention (2010)
  • Functioning of the AC (e.g. as regards the 3 year period under Article 6 (1) AC)
  • Serious penalties, tax collection and interest charges.

 

Key documents:

2. Code of conduct on transfer pricing documentation for associated enterprises in the EU
 

On 27th June 2006, the Council adopted a Code of Conduct on transfer pricing documentation for associated enterprises in the European Union (EUTPD). This was part of a Communication of the European Commission adopted on 10 November 2005.

The Code of Conduct aims to standardise the documentation that multinationals must provide to tax authorities on their pricing of cross-border intra-group transactions ('transfer pricing' documentation).

The Code, that was developed on the basis of work in the JTPF (IP/02/1105 ). It aims to reduce significantly the tax complications that companies face when trading with associated enterprises in other Member States. Companies frequently complain about the onerous and divergent documentation obligations with which they have to comply in such cases in the different Member States involved.

The Code is a political commitment. It will not affect Member States' rights and obligations or the respective spheres of competence of the Member States and the EU.

Key documents:

3. Guidelines for Advance Pricing Agreements (APAs) in the EU
 

The Commission on 26th February 2007 adopted a Communication on the work of the Joint Transfer Pricing Forum (hereafter: JTPF) in the field of dispute avoidance and resolution procedures including guidelines for Advance Pricing Agreements (APAs) within the EU.

The Communication is the third outcome achieved since the JTPF was set up in October 2002, and the proposed guidelines are based on the best practices identified by the JTPF in its report.

The Guidelines aim to prevent transfer pricing disputes and associated double taxation from arising in the first place by laying down how an efficient APA process should work.

An APA will provide in advance certainty concerning the transfer pricing methodology and therefore simplify or prevent costly and time-consuming tax examinations into the transactions included in the APA. This should lead to savings for all parties involved, cut compliance costs and provide more consistency in transfer pricing within the EU. This approach will reduce tax obstacles to cross-border economic activities in the internal market.

The Guidelines set out the framework for the overall procedure and provide details of how some specific problems could be resolved. They also provide examples of the necessary time frame and the types of areas which would need to be covered by the APA.

On 5 June 2007 the Council "welcomed the Commission Communication on the work of the Joint Transfer Pricing Forum in the field of dispute avoidance and resolution procedures including guidelines for Advance Pricing Agreements within the EU. The Council noted the commitment of Member States to follow the Guidelines and to implement them in their national administrative practices as far as legally possible".

Key documents:

4. Guidelines on low-value-adding intra-group services
 

On 25 January 2011 the Commission adopted Communication 2011/16 on the work of the JTPF from April 2009 to June 2010 including proposed guidelines on low-value-adding intra-group services .

The guidelines:

  • provide a response to an increasing awareness that business and tax administrations' compliance resources (for auditing and dispute resolution) are taken up by what used to be a routine aspect of intra-group transactions.
  • put into context the nature of certain transactions (related to intra-group service provision) and propose appropriate (but less resource-intensive) approaches to evaluate these transactions against the internationally recognised arm's-length standard.
  • are based on certain principles: deductibility of all relevant costs subject to domestic law provisions; availability of relevant and reliable information; flexibility of the reviewer's approach.
  • address more specific areas such as shareholder costs, cost pools, allocation keys, etc.
     
5. Potential approaches to non-EU triangular cases
 

Communication 2011/16 also proposed potential approaches to non-EU triangular cases.

The Forum defined non-EU triangular cases as cases where 2 states in a Mutual Agreement Procedure cannot fully resolve any double taxation arising in a transfer pricing case when applying the arm's length principle, because an associated enterprise situated in a third state is identified as being the source of non-arm's-length results in a chain of relevant transactions or commercial/financial relations. Different approaches to resolving such disputes were suggested.

In addressing the issue of transfer pricing triangular cases, the Forum distinguished between cases where the third associated company is situated within or outside the EU. Cases where all associated enterprises are within the EU are covered by the provisions of the revised Code of Conduct on the Arbitration Convention (see above).
 

6. Report on Small and Medium Enterprises (SMEs) and Transfer Pricing
 

On 19 September 2012 the Commission adopted a Communication (COM/2012/516 ) on the work of the EU Joint Transfer Pricing Forum in the period July 2010 to June 2012 including the Report on Small and Medium Enterprises and Transfer Pricing (SME Report) prepared by the JTPF. In its Conclusions of 4 December 2012 the Council of the EU welcomed the Commission Communication and the SME Report.

The Report examines the specific issues of SMEs in the field of transfer pricing and suggests how to address them in the form of a series of recommendations concerning areas such as access to information, training, documentation requirements, audit, existing best practices and dispute resolution.

Following the adoption of the SME Report EU Member States completed a questionnaire on SMEs and transfer pricing. Their responses contain information relevant for SMEs in tackling transfer pricing matters and are published below (in English, except for France; information for France is available in French only)
 

Austria Germany Netherlands
Belgium Greece Poland
Bulgaria Hungary Portugal
Croatia Ireland Romania
Cyprus Italy Slovakia
Czech Republic Latvia Slovenia
Denmark Lithuania Spain
Estonia Luxembourg Sweden
Finland Malta United Kingdom
France
 
7. Report on Cost Contribution Arrangements on Services not creating Intangible Property (IP)
 

On 19 September 2012 the Commission adopted a Communication (COM/2012/516 ) on the work of the EU Joint Transfer Pricing Forum in the period July 2010 to June 2012 including the report on Cost Contribution Arrangements on services not creating Intangible Property (IP).

The report elaborates on the different concepts underlying Cost Contribution Arrangements (CCAs) on services and Intra Group Services (IGS). It describes the general features for determining whether the arm's length principle has been applied to CCAs on services not creating IP. The report provides a list of information items that should meet the requirements of most reviewers when determining whether a CCA can be regarded as arm's length and gives concrete recommendations to achieve a uniform treatment within the EU.
 

8. Report on Secondary Adjustments
 

On 4 June the Commission adopted a Communication on the work of the EU Joint Transfer Pricing Forum (JTPF) in the period July 2012 to January 2014 which includes the JTPF reports on secondary adjustments, transfer pricing risk management and compensating adjustments.

The report on secondary adjustments addresses the issue of secondary adjustments in general and puts it in the context of the EU Parent Subsidiary Directive. It includes several recommendations aiming to avoid double taxation and to solve disputes.

Key documents:

9. Report on Transfer Pricing Risk Management
 

On 4 June the Commission adopted a Communication on the work of the EU Joint Transfer Pricing Forum (JTPF) in the period July 2012 to January 2014 which includes the JTPF reports on secondary adjustments, transfer pricing risk management and compensating adjustments.

The report on transfer pricing risk management recognises the need for tax administrations and taxpayers to allocate their transfer pricing resources effectively. It makes recommendations on managing transfer pricing risk in each of the three phases of examining a transfer pricing file. The report also contains an example of a work plan for a transfer pricing audit.

Key documents:

10. Report on Compensating Adjustments
 

On 4 June the Commission adopted a Communication on the work of the EU Joint Transfer Pricing Forum (JTPF) in the period July 2012 to January 2014 which includes the JTPF reports on secondary adjustments, transfer pricing risk management and compensating adjustments.

Member States have different practices with respect to compensating adjustments and the report provides practical guidance on avoiding double taxation and double non-taxation in the application of compensating adjustments in spite of the different practices of Member States. The guidance is applicable to compensating adjustments which are made in the taxpayer’s accounts and explained in the taxpayer’s transfer pricing documentation.

Key documents:

 

Work programme

In September 2015 the JTPF agreed on its Program of Work for 2015 – 2019.

This work programme reflects the priority initiatives envisaged by the European Commission in the area of transfer pricing. It is not limited to working on BEPS measures but also aims at ensuring an effective and efficient tax collection and increasing compliance without excessive administrative burden.

Two key aspects have been specifically considered as part of recent evolutions in the TP area and global tax environment:

  • The increased importance of economic analysis in TP, so that  techniques such as, bargaining power analysis, advanced valuation techniques, real options or scenario analysis rooted in the value chain of the Group, should be used in the TP area to provide a more relevant view of the value creation process
  • The interaction between TP and companies’ internal information systems and tools (e.g. management reporting and IT systems)

 Particularly the following topics are covered:

  • Use of comparables in the EU
  • Use of the transactional profit split method (PSM) in the EU
  • Use of economic valuation techniques for transfer pricing in the EU
  • Multilateral Controls in the EU
  • Improving double taxation dispute resolution in the EU

Meetings

2017
meeting date
49 22/06/2017
48 09/03/2017
2016
meeting date
47 20/10/2016
46 23/06/2016
45 18/02/2016
2015
meeting date
44 22/10/2015

43

25/06/2015

42

12/03/2015

2014
meeting date

41

24/10/2014

40

26/06/2014

39

06/03/2014

2013
meeting date

38

05/11/2013

37

06/06/2013

36

14/02/2013

2012
meeting date

35

25/10/2012

34

07/06/2012

33

08/03/2012

2011
meeting date

32

26/10/2011

31

09/06/2011

30

10/02/2011

2010
meeting date

29

26/10/2010

28

08/06/2010

27

04/02/2010

2009
meeting date

26

27/10/2009

25

03/06/2009

24

24/03/2009

2008
meeting date

23

27/11/2008

22

05/06/2008

21

21/02/2008

2007
meeting date

20

23/10/2007

19

28/06/2007

2006
meeting date

18

07/12/2006

17

14/09/2006

16

20/06/2006

15

21/03/2006

2005
meeting date

14

12 & 13/12/2005

13

20/09/2005

12

21/06/2005

11

16/03/2005

2004
meeting date

10

14/12/2004

9

16/09/2004

8

10/06/2004

7

18/03/2004

2003
2002
meeting date

2

04/12/2002

1

03/10/2002