In July 2020, the European Commission presented the Action Plan for Fair and Simple Taxation as part of its economic recovery strategy, in which it committed to developing, with interested Member States, a framework for cooperative compliance at the European Union level, known as ETACA (European Trust and Cooperation Approach). ETACA is a non-legislative initiative that seeks to promote greater cooperation, transparency, and trust between taxpayers—especially large multinational enterprises (MNEs)—and tax administrations, as well as between the administrations of different Member States themselves.
Its main objective is to establish a high-level preventive dialogue on relevant tax risks (with a special emphasis on transfer pricing), allowing for early assessments by tax authorities of the tax policies adopted by companies. This scheme seeks to provide greater legal certainty for cross-border operations, prevent double taxation, and reduce tax compliance costs for the companies involved.
Nature, scope, and pilot phases
ETACA is a voluntary initiative (“pilot project”) that operates under specific guidelines (the ETACA Guidelines), initially published in October 2021 and revised in May 2025. During its first pilot phase (which began in November 2021), fourteen Member States and three voluntary multinational companies participated, which made it possible to test the operationality of the guidelines and gather experiences, challenges, and practical feedback.
ETACA is also planning a second pilot phase, which has already attracted the interest of numerous Member States (seventeen at the most recent count) and the intention of more companies to join, with a view to moving towards a more permanent implementation.
Main components and operation
1. Guidelines:
The ETACA guidelines form the backbone of the program. They are issued by the European Commission and seek to harmonize the way tax administrations and multinational enterprises (MNEs) manage a framework of cooperative compliance.
- Content of the guidelines: they include clear procedures on how cases should be managed within the program, risk assessment criteria, preventive analysis methodology, and transparency standards required of participants.
- Focus on consistency: they seek to reduce fragmentation in the interpretation of tax rules among Member States by establishing a common framework that allows for more predictable and coordinated decisions.
- Practical application: the guidelines are used as an “operating manual” by both administrations and companies, ensuring that the process is transparent, documented, and replicable in future phases of the program.
2. High-level risk assessment:
Early tax risk analysis is at the heart of ETACA. Before disputes or ex post audits arise, the administration jointly assesses the company’s tax policies, with an emphasis on cross-border transactions and transfer pricing.
- Review methodology: The assessment covers the consistency of the transfer pricing policy, the selection of methods, the use of comparables, alignment with market conditions, and supporting documentation.
- Preventive approach: This allows potential discrepancies to be detected before they materialize in adjustments, litigation, or penalties.
- Multinational collaboration: the analysis is not carried out in a single jurisdiction, but involves several tax administrations, reducing the risk of conflicting interpretations leading to double taxation.
- Key advantage: By identifying risks early on, MNEs can adjust their documentation or accounting practices in time, avoiding subsequent challenges.
3. Preventive dialogue:
One of the most innovative features of ETACA is the promotion of early and ongoing dialogue between the company and the tax authorities. This dialogue is not limited to a specific phase, but is maintained throughout the relationship between the two parties.
- Objective: to build a relationship based on trust and transparency, where sensitive issues are discussed before they become disputes.
- Mechanisms for interaction:
- Designation of a single point of contact in each participating administration, facilitating centralized communication.
- Regular technical meetings to review specific tax policy issues (e.g., transaction valuation, intra-group financing, IP, etc.).
- Political or strategic sessions when the case involves broader regulatory or interpretation issues.
- Expected outcome: reduce friction between administrations and companies, increase mutual trust, and facilitate multilateral agreements on complex issues.
4. Expected benefits:
ETACA seeks to create a win-win situation for tax authorities and MNEs. Among the most relevant benefits:
- Legal certainty for MNEs: companies obtain advance clarity on how the authorities will evaluate their tax policies, especially in terms of transfer pricing. This allows them to plan with greater certainty and reduce the risk of penalties.
- Reduced compliance costs: by decreasing the likelihood of lengthy audits or international litigation, the costs associated with tax defense and ex post adjustments are significantly reduced.
- Prevention of double taxation: coordination between jurisdictions prevents the same income or transaction from being taxed twice, one of the biggest problems in multinational operations.
- Greater administrative efficiency: for both companies and authorities, working in a coordinated and proactive manner reduces duplication of processes and improves resource allocation.
- Strengthening mutual trust: the cooperation framework creates an environment where companies feel encouraged to be more transparent, and authorities, in turn, show greater openness in their interpretation.
Challenges, conditions for participation, and considerations for MNEs
For ETACA to function effectively and credibly, several challenges and requirements arise:
- Voluntary participation and careful selection: Participating companies must be prepared for a high level of transparency, documentation, and rigorous analysis. Not all MNEs will be ideal candidates depending on their structure, internal complexity, cross-border operations, and tax risk profile.
- Capacity and commitment of tax administrations: For the program to work, tax authorities must have the technical resources, capacity for coordination between jurisdictions, institutional commitment, and clear frameworks for action.
- Clarity of criteria and uniform application: Guidelines must be applied consistently across Member States to prevent the program from creating inequalities or uncertainties. For example, what constitutes acceptable risk, how comparables are assessed, when a preventive adjustment is considered sufficient, etc.
- Management of expectations: Companies must understand that participating in ETACA does not guarantee immunity from audits or automatic tax exemptions; rather, it offers a formal framework for mitigating them if they act in accordance with the cooperation agreement.
- Rigorous documentation: As with any transfer pricing scheme, the technical documentation must be robust, with comparable studies, risk analyses, well-founded transfer pricing policies, evidence of economic assumptions, etc.
Conclusion
ETACA represents a significant effort by the European Union to modernize cross-border corporate taxation, raising standards of trust, transparency, and collaboration between tax administrations and multinational companies. The preventive approach to risk assessment, early dialogue, and clear guidelines, if implemented effectively, offer a way to reduce tax uncertainty, avoid double taxation, and reduce the costs associated with tax compliance.
While ETACA offers clear benefits, its success will depend on the institutional effectiveness of Member States, the analytical capacity of companies to comply with requirements, and the consistent application of its guidelines across jurisdictions. For multinationals, ETACA is an opportunity, but also a call to raise their level of technical and documentary preparedness so that they can embrace standards of full competition with greater predictability and confidence.
Source: European Comission