European Commission Vows to ‘Bring Structure to Chaos’ with Transfer Pricing Directive

The European Commission has committed to supporting businesses and simplifying tax processes through its newly introduced transfer pricing (TP) directive, aiming to "bring structure to chaos" in the tax landscape.

Marc Clercx, a representative of the European Commission, highlighted these goals while addressing industry concerns during a discussion on the directive, which was released in September 2023. The directive seeks to harmonize TP rules across Europe and formally incorporate the arm’s-length principle (ALP) into EU law.

“We want to bring some structure to the chaos in the world and, through our initiatives, more certainty for taxpayers,” Clercx said. He further emphasized that the Commission’s primary objective is to ease the burden on businesses. “The focus of the Commission is to support businesses. Our president has said that previously we were putting too much burden on businesses, so now we want to support them.”

The growing prevalence of tax controversies across the European Union was a key motivator for creating the directive, Clercx explained. He noted that the EU had been dealing with a significant number of disputes, particularly mutual agreement procedures (MAPs). “We looked at yearly data on mutual agreement procedures and in the EU there was an enormous number of MAPs. That was a serious concern,” he said. Clercx had previously noted that, as of November last year, there were 2,300 unresolved TP cases across Europe.

To address these issues, Clercx stressed that the directive is designed to reduce the complexity of TP rules, offering clear guidance for taxpayers. “One way to prevent controversy is to provide guidance so that taxpayers can fill in tax returns with a high level of certainty. That was the starting point [for the directive] – to make TP rules simpler,” he stated. He also mentioned that the directive is concise, explaining, “To that end, the directive is not long. It’s actually almost nothing. We just wanted it to express basic principles.”

In response to concerns raised by businesses about the potential for international inconsistency if the ALP were adopted exclusively in the EU, Clercx reassured them that the Commission's intention is to align with the OECD's standards. “Businesses are concerned that we want to create a new ALP only for the EU. We don’t think that’s a valid concern, because we have said in the proposal that we will follow the OECD. In any case, there are always different ways of applying the ALP,” Clercx explained.

When asked about the possibility of simplifying country-by-country reporting (CbCR) rules across Europe, Clercx admitted that it is not currently a priority for the Commission but hinted that it could be considered in the future. “CbCR is not on our radar, so that’s something for us to take home,” he acknowledged, adding, “[But] we do want to do something in this area [in the future].”

The rules outlined in the transfer pricing directive are set to take effect on January 1, 2026.

By fLEXI tEAM