“Think international – act international – audit international“. Multinational enterprises (MNEs) primarily engage in cross-border activities and invest internationally while the competences of national tax jurisdictions remain limited to the national territory as a matter of principle. To face up to the challenges of globalisation and address the business models that have been developed to match the new economic realities, tax administrations need to strengthen their cooperation and be open to experiment with new forms of collaboration that deepen the exchange of information. In this context, a coordinated approach to transfer pricing controls would contribute to a better functioning of the internal market on two fronts: it would offer tax administrations a transparent and efficient tool to facilitate the allocation of taxing rights and also prevent the occurrence of double taxation and double non taxation. In the EU legal order there is a framework that provides Member States’ tax administrations with the tools for cross-border/administrative cooperation. It is important to use all available tools for administrative cooperation in the best possible way, including bi- and multilateral transfer pricing controls and to consider their improvement where necessary1. In the Report on Transfer Pricing Risk Management of the Joint Transfer Pricing Forum (JTPF), it is recommended to take simultaneous controls or joint audits into consideration in appropriate cases while it is recognized that especially at the beginning of this practice, the capacity and experience of one or both tax administrations involved may be limited.2 For this reason the current work programme of the JTPF3 includes the assignment of summarizing Member States’ practices and experiences in the context of simultaneous controls and joint audits as well as providing practical guidance on how to cooperate bi- or multilaterally in transfer pricing controls. OBJECTIVE  The objective of this paper is to establish a coordinated approach to transfer pricing controls within the EU, in order to avoid double taxation or non-taxation. Furthermore, it serves as a starting point for analysing which tools, and how, can be improved based on the current EU legal framework. PART 1 THE FRAMEWORK FOR A COOPERATIVE APPROACH TO TRANSFER PRICING CONTROLS IN THE EU 1.1. PRINCIPLES A fair corporate tax system ensures that profits are allocated where the value is generated and that these profits are not taxed twice. Transfer pricing rules based on the arm’s length principle serve to allocate income earned by a multinational enterprise among those countries in which the company does business. Transfer pricing is highly fact-specific as, generally, the price of each transaction needs to be determined by reference to a comparable transaction. This determination requires the exercise of judgement on the part of both the tax administration and the taxpayer and a review of the transfer pricing methods at several points in the process of a comparability analysis4. Therefore, transfer pricing is potentially more subjective than other areas of direct and indirect taxation and, for this reason, sensitive to disputes. Given this nature of transfer pricing, it is key to develop administrative cooperation at two levels: (i) between the relevant tax administrations; and (ii) between tax administrations and taxpayers. Cooperation between tax administrations When the tax authorities of a Member State decide to audit an MNE with taxable activity that extends beyond their taxing jurisdiction (and possibly, beyond the EU), close and transparent cooperation between the relevant Member States’ tax authorities throughout the auditing process could decisively contribute to a successful audit, i.e. an audit that is effective (concluding the review of a case without the need for further procedural steps, e.g. a MAP) and efficient (achieving this aim with a minimum of resources and time). To this end, tax administrations are encouraged to exchange all foreseeably relevant information in a timely manner and to cooperate for building a common analysis and understanding of the same facts and circumstances of a specific case. In fact, even a common risk assessment and analysis of the functions, risks and assets related to the cross-border transactions under scrutiny should facilitate a common interpretation of the arm’s length principle. “Recommendation 1: Exchange of information and cooperation between tax administrations should be used where they are expected to assist in the identification of transfer pricing risks and to contribute to an efficient audit.” Cooperation between tax administrations and taxpayers Taking into consideration the recommendations that feature in the JTPF report on transfer pricing risk management and the principles laid out in the Guidelines for a Model European Taxpayers’ Code5, the taxpayer, without prejudice to national provisions, should have the right to be kept up-to- date with the milestone developments of the audit. At the same time, the taxpayer should be transparent and share – in a timely manner – the relevant information with each of the tax administrations involved in the bi-or multilateral control. “Recommendation 2: It is preferable to take a cooperative approach based on dialogue and trust. A cooperative approach  is inter alia characterised by communication between tax administrations and taxpayers. The taxpayer should be actively involved in the actual auditing activities and have the right to communicate and be heard in accordance with the national provisions. The taxpayer should be timely informed of the steps taken by the tax administrations during the audit.6 At the same time, the taxpayer should be transparent and share in a timely manner the relevant information with each of the tax administrations involved.” 1.2 CURRENT CONCEPTS AND TERMS Various terms are used in the practice of tax administrations and in tax literature to refer to tax- related ‘examinations’ with a cross-border operational dimension. Presences in administrative offices and participation in administrative enquiries (PAOE) According to article 11 of Directive 2011/16/EU (the DAC), PAOEs consist in one Member State requesting to be present in another Member States’ offices and/or during administrative enquiries carried out in the territory of the requested Member State. In addition to being present, Member States’ officials may interview individuals and examine records during administrative enquiries – but under the condition that this is permitted under the legislation of the

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.