European Commission Proposes Transfer Pricing Directive for EU Law

The European Commission has proposed a Transfer Pricing Directive aimed at incorporating the arm's-length principle (ALP) and essential transfer pricing (TP) rules into EU law. Mauro Faggion, a seconded national expert at the European Commission, delivered the keynote address at the ITR Global Transfer Pricing Forum Europe conference in London.

The proposed directive, introduced in September, seeks to establish a common EU framework for applying the ALP and ensuring that multinational entities can avoid double taxation. Faggion, who works within the Directorate-General for Taxation and Customs Union, explained that the directive would require that the rules it establishes are applied consistently with the OECD Transfer Pricing Guidelines.

The current directive references the latest OECD guidelines, which are from 2022. However, Faggion also mentioned the inclusion of a mechanism to implement potential updates to the OECD guidelines. If the OECD updates its guidelines, the European Commission will propose amendments to EU member states for their consideration, with unanimous approval from the EU Council required for implementation.

The TP Directive rules are expected to become effective from January 1, 2026. While Faggion did not specify a particular date during the conference, he expressed the Commission's confidence in the directive's timely implementation.

It's important to note that EU member states must unanimously accept the proposal for it to become enforceable due to the unanimity rule regarding direct taxation in the EU. Faggion remained cautiously optimistic about the directive's acceptance by all EU member states, emphasizing that the directive's technical content is not contentious, but acknowledging that political negotiations can be uncertain.

In his post-address comments, Faggion stated, "We are fully aware that our member states are busy at the moment with the implementation of pillar two and with the negotiation on pillar one, and we don't want to put any pressure on them. They should take the time they need to understand and reflect on the content of the initiative."

By fLEXI tEAM