EU transfer pricing directive

Last updated: 17/12/2024

The European Commission published a proposed directive to harmonise transfer pricing rules in the EU.
In the EU, most member states commit to applying the OECD rules on transfer pricing, but their status and the way they are interpreted and applied is not consistent.
The Commission’s proposal seeks a common application of some core transfer pricing principles across the EU. In particular, the proposal:
- defines associated enterprises with reference to a 25% threshold for voting rights, capital participation or entitlement to profits. It also clarifies that a permanent establishment is to be considered an associated enterprise of the head office.
- requires member states to apply the arm’s length principle to determining taxable profits from cross-border commercial or financial transactions between associated enterprises.
The proposal allows the Commission to propose transfer pricing documentation requirements within the EU and common binding transfer pricing approaches for certain transactions, both to be developed at a later stage. A majority of member states are not supportive of the directive and an option of a transfer pricing platform has been discussed, although there are diverging views on the form it should take.
Timing: The EC ran a consultation on the proposed directive until 3 January 2024. If unanimously agreed by member states as proposed, the directive will apply from 1 January 2026. A progress report was approved by the Council in June 2024.