What changed between the draft committee report and the plenary report

The rapporteur recognises the problems put forward by the European Commission and fully subscribes to the objectives of the directive. The rapporteur does regret that the European Commission has not properly consulted stakeholders on this specific proposal.

Taking into account the above, the rapporteur has opted in its report to simplify the directive and align as closely as possible to the latest OECD Transfer Pricing Guidelines, both to provide certainty to tax payers and Member States. The rapporteur believes the European Commission made in certain areas choices which have been insufficiently justified. However, the rapporteur supports a stronger future role for the European Commission in seeking a more harmonised approach in the EU on applying the OECD Transfer Pricing Guidelines, in the same vein the rapporteur supports the coordination amongst Member States ahead of OECD negotiations on the future guidelines and towards third countries.

The proposed simplification has led to the rapporteur’s suggestion to shorten the entry into force of the directive, as most Member States already introduced the arm’s length principle in domestic legislation.

The rapporteur also wishes to emphasise the risks with the current transfer pricing status quo in the EU of double non-taxation, illegal state aid, aggressive tax planning and significant losses of tax revenues. The rapporteur feels these issues have been too little recognized in the proposed directive.

The objectives enshrined in articles 6 and 7, reducing tax disputes and avoiding double non taxation through unilateral downward adjustments, are supported by the rapporteur.

The rapporteur defends a stronger role for the European Parliament. The European Parliament could act as an observer in the future Transfer Pricing negotiations at EU and OECD level.

Finally, and most importantly, the rapporteur recognizes the significant limitations of the arm’s length principle and the OECD Transfer Pricing Guidelines. The rapporteur supports the idea of phasing out the application of the arm’s length principle and instead introduce group-wide consolidation and formulary apportionment as a means of fairly allocating profits in-between countries and recognizing the operational reality of a multinational company. The rapporteur welcomes the important developments in this direction through the OECD Pillar 1 proposal, also known as the Multilateral Convention, and the European Commission’s proposed BEFIT directive. Although the rapporteur recognizes that in the meantime there is a need for a proper and consistent application of the arm’s length principle in the EU.

To this end, the rapporteur has included a sunset clause in this directive. The directive should first cease to apply for those companies in scope of the BEFIT directive, known as the BEFIT groups, as of 2035. Going further, the directive should cease to exist for all multinational groups operating in the EU as of 2040, except for their transactions with third countries.

To conclude the rapporteur proposes to align the directive with the opinion provided by the European Data Protection Board.