On September 12 the European Commission adopted a Directive Proposal on Transfer Pricing. This proposal is part of the package known as Business in Europe: Framework for Income Taxation (BEFIT).
While the Directive Proposal would integrate key transfer pricing principles into EU law, BEFIT aims to introduce a common set of rules for EU companies to calculate their taxable base that would be aggregated at BEFIT group level and subsequently reallocated to the individual companies based on formulary apportionment.
The Directive Proposal attempts to integrate the arm’s-length principle and some fundamental transfer pricing principles included in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TP guidelines) into EU law. It would further create a new procedure for ensuring corresponding adjustments, require certain transfer pricing documentation, clarify the role and status of the OECD TP guidelines, and create the possibility to establish common binding rules on specific transactions. If adopted by the EU Council, the Directive Proposal would enter into force on July 1, 2026.
This article provides an overview of the Directive Proposal, considers its purported purpose, and analyses its numerous issues.