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Taxation and Customs Union

Transfer Pricing in the EU

The EU’s initiatives for fair transfer pricing

Transfer Pricing in the EU

Transfer pricing refers to the price that one division of a multinational enterprise (MNE) charges another division for goods and services provided, particularly when the divisions are established in different countries. 

EU countries set their own national legislation on transfer pricing, but the EU itself has a coordinating role. The EU adopts the Arm’s Length Principle of the OECD Model Tax Convention and recognises the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

Background

Since transfer pricing is set by non-independent associates within a multinational, there is a risk that the prices do not reflect an independent market price. 

This is a major concern for tax authorities who worry that multinational entities may set transfer prices on cross-border transactions to reduce taxable profits in their jurisdiction. Transfer pricing regulations thus contribute to more equitable and fair taxation. 

A 2001 European Commission study on company taxation in the EU found that although all Member States apply and recognise the merits of the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, different interpretations of these guidelines often lead to cross-border disputes detrimental to the smooth functioning of the Internal Market.

Proposal for harmonised transfer pricing rules

On 12 September 2023, the European Commission proposed new rules to harmonise transfer pricing and ensure a common approach when tackling transfer pricing problems. 

More about the proposal

Joint Transfer Pricing Forum

The Joint Transfer Pricing Forum (JTPF) was an informal body set up to assist and advise the European Commission on transfer pricing tax matters. 

More about the JTPF