The European Union is a unique economic and political union between 28 European countries that together cover much of the European continent. It is the largest trade block in the world. It is the world’s biggest exporter of manufactured goods and services, and the biggest import market for over 100 countries. Free trade among its members are one of the EU’s founding principles. This is possible thanks to the single market. Beyond its borders, the EU is also committed to liberalising world trade.
The EU does not have a direct role in raising taxes or setting tax rates. The amount of tax you pay is decided by your government, not the EU. The EU’s role is to oversee national tax rules – to ensure they are consistent with certain EU policies. In relation to transfer pricing – making sure businesses in one country don’t have an unfair advantage over competitors in another.
EU decisions on tax matters require unanimous agreement by all member governments.
The European Commission together with the Court of Justice, ensures that EU law is properly applied in all the member countries – eg. that illegal State aid has not been granted.The Treaty generally prohibits State aid unless it is justified by reasons of general economic development. To ensure that this prohibition is respected and exemptions are applied equally across the European Union, the European Commission is in charge of ensuring that State aid complies with EU rules. Since 2013, the Commission has been investigating the tax ruling practices of Member States. The Commission extended this information inquiry to all Member States in 2014, including a list of tax rulings issued in recent years, on the basis of which individual tax rulings have been requested. As of 2016 new transparency requirements for State aid have enter into force.
The EU Joint Transfer Pricing Forum (JTPF) assists and advises the European Commission on transfer pricing tax matters. 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.
A series of transfer pricing 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 together. 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.
Different guidance or recommendations issued by the JTPF 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.