Transfer Pricing Modifications in the European Union

October 26, 2023

Last September, the European Commission published the Proposal of the Council Directive concerning Transfer Pricing. Thereby, the Commission aims to establish a level playing field by requiring the 27 commissioners, one for each EU member country, to apply the same standards. 


Whilst most Member States already apply the OECD Transfer Pricing Guidelines to some extent, the objective is to increase tax certainty for multinational groups of companies within the European Union to mitigate the risk of Transfer Pricing controversies and double taxation risks. 


In order to reduce the possibilities of abusive tax planning practices by multinational groups through Transfer Pricing, the European Commission incorporates the Arm’s Length Principle and the main Transfer Pricing rules into its legal framework, thereby establishing common binding norms.   

These would apply to all companies resident in a Member State, as well as permanent establishments in the European Union. The rules would be implemented by December 31, 2025, and applicable as of January 1, 2026. 

Related Company Definition 

The European Commission introduces a common related company definition across the European Union as an individual or legal entity related to another in one of the following forms:  

  • The participating entity in the management of the other one can significantly influence the latter;  
  • The participating entity in the control of the other one through a shareholding exceeding 25% of the voting rights;   
  • The participating entity in the capital of the other one through an ownership interest that, directly or indirectly, exceeds 25% of the capital;   
  • Or an entity entitled to 25% or more of the profits of the other entity.   

Obligated Taxpayers 

These new rules will be mandatory for groups operating in the EU with a cumulative annual income of at least €750 million and those in which the ultimate parent entity owns, directly or indirectly, at least 75% of the ownership rights or rights entitling to benefit.  


Source: El Economista