By Bram Markey (Director, Transfer Pricing, PwC Belgium)
The EU Joint Transfer Pricing Forum has published a report, which aims to address the lack of guidance on bilateral and multilateral transfer pricing audits.
There is a notable increase in the number and detail of multilateral transfer pricing audits in the EU, fueled by a number of successful pilot cases and the EU Fiscalis program. The report – A coordinated approach to transfer pricing controls within the EU – includes recommendations for a more coordinated approach within the EU, and to identify tools to improve the current EU framework in this respect.
The report highlights best practices for reducing companies’ compliance costs and for preventing double taxation. After all, a multilateral audit involving all affected member states and having a joint conclusion on facts and transfer pricing outcome would reduce the need for mutual agreement procedures (MAPs) or reliance on the EU Arbitration Convention.
The key recommendations contained in the report are stated below:
- Between tax administrations, exchange of information and cooperation should be used to ensure that an audit is performed in an effective (concluding the audit without the need for further procedural steps, such as MAP) and efficient (minimize resources and time required of both taxpayers and tax administrations) way;
- Between tax administrations and taxpayers, a cooperative approach should be built on dialogue and trust. This entails the taxpayer having the right to be heard and being involved in/updated on the auditing activities. Taxpayers should also be transparent and share information with the tax authorities involved in a timely manner;
- Member states are encouraged to implement legislation that permits the active presence of visiting foreign officials;
- Member states should participate in coordinated transfer pricing controls unless their refusal is based on a reasonable explanation;
- An audit plan should be agreed and signed for each transfer pricing control. The audit plan would normally identify (among other items) the scope of the audit (taxpayers and tax periods under audit), the transactions/dealings under audit, the milestones, the working language, and the rules for carrying out ‘auditors-in-presence’ activity;
- Member states should agree a Memorandum of Understanding in case they wish to establish sustained coordinated transfer pricing control program; and
- Coordinated transfer pricing controls should be finalized with a concluding report. Tax administrations should endeavor to arrive at a jointly accepted description of the facts and circumstances and subsequent transfer pricing analysis.
The EU Joint Transfer Pricing Forum, which is composed of representatives of the EU member states, non-government organizations and business, operates on the basis of consensus to propose to the European Commission pragmatic, non-legislative recommendations on transfer pricing matters on an EU-level.
The EU Commission will now communicate the Report to the Council, the European Parliament, and the European Economic and Social Committee.