Ref. Ares(2016)3151706 - 01/07/2016
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Transfer pricing – Transparency and exchange of information
Report from the Commission Services to the Code of Conduct Group
summarising the discussions in subgroup A.
Introduction
1
The issue of transparency and exchange of information in the transfer pricing
area was discussed at meetings of subgroup A (hereinafter referred to as “the group”),
on 19 March and 1 April 2001. The documents 7142/01 FISC 46 and 7552/01 FISC
54 (hereinafter referred to as FISC 54) prepared by the chair of the group served as a
basis for the discussions.
2
Both working papers from the chair of the group were based on paragraph 17
of Annex I to the report 13563/00 FISC 193, which makes a distinction between
exchange of information on a yearly basis and exchange of information in individual
cases.
3
The purpose of this paper is to report to the Code of Conduct Group the
outcome of the discussions in the group.
4
The subject of transparency and exchange of information in the transfer
pricing area raises a number of complex and technical problems. Despite the helpful
papers from the chair of the group, the group was, due to the relatively short time
available not able to reach any final conclusions. The discussions were however very
useful and established a good basis for further work.
5
The clear majority of Members of the group indicated that they support the
idea of improving transparency through exchange of information in the transfer
pricing area, although a number of specific issues and details require further
clarification. It was suggested that a questionnaire be used to obtain more factual
information on problem areas and to get precise information on what type of
information Member States would find useful to exchange.
6
The following paragraphs outline in more detail the discussions in the group.
Exchange of information on a yearly basis
7 Most
Members of the group (hereinafter referred to as “Members”) were in
favour of an exchange of information on a yearly basis. Transfer pricing is a major
factor in the context of tax competition. Lack of transparency may for instance
operate so as to create harmful tax measures. It is therefore necessary to improve
transparency through annual exchange of information. Some Members, however,
expressed some doubts about the usefulness of exchanging publicly available
information on a yearly basis.
8
There was a broad consensus that it might not be possible to obtain a perfect
result in the first instance but that it nevertheless was important to start the process,
and that both the types of information being exchanged and the relevant procedures
could be revised once some experience has been gained. Similarly, there was
agreement that the exercise should not impose an undue burden on tax administrations
while still preserving the benefits to be derived from transparency and increased
exchange of information.
9
The degree of usefulness of a yearly exchange of information depends on
which information should be the basis for such information. It was generally agreed
that it should be possible to include not only public information of a general nature
but also more specific information, as long as it is possible to secure anonymity in
individual cases. Information concerning individual taxpayers that is confidential,
protected by law or regulations, would not fall within the scope.
10
The question of exchange of information concerning Advance Pricing
Arrangements (APAs) or other advance agreements on transfer pricing involving third
country companies were discussed. Some Members of the group found that such
information would not be useful and also expressed concern related to confidentiality.
Another view expressed was that such information would in principle be very useful
2
but that the modalities had to be discussed. (On the aspect of third country companies,
see also paragraphs 18 and 19 below).
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The group agreed that all Member States should fully participate in the
information exchange. Some Member States stressed, however, that they have no or
little experience on transfer pricing or on APAs. Although this situation would not
prevent such Member States from exchanging information on a reciprocal manner it
would of course have an impact on the amount of information that, on their part,
could be exchanged. This should not be seen as a violation of the principle of
reciprocity.
12
FISC 54 lists some specific items of information concerning the use of transfer
pricing guidelines in practice, the number and kind of APAs and the procedures for
APAs, that could be exchanged on a yearly basis:
a) Use of transfer pricing guidelines in practice;
No Member said that they would not be able to exchange the items of information
listed under this heading.
b) Number and kind of APAs;
The vast majority of Members expressed the view that this information would be
useful but that it was necessary to establish the appropriate level of aggregation in
order to protect confidentiality of individual taxpayers.
c) Procedures for APAs;
No Member said that they would not be able to exchange the items of information
listed under this heading.
A few Members referred to difficulties of a practical nature resulting from the
different administrative burden, because of the sizes of the tax administrations,
between the smallest and the biggest Member States.
13
Introducing a yearly exchange of information raises questions on the
procedures for such an exchange. A possible solution would be that Member States
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submit the information to the Commission, who would co-ordinate the procedure. The
Commission services said that they would be prepared to undertake this role. The
Commission services expressed the view that some kind of standardised reporting
format could usefully be developed.
Exchange of information in individual cases
14 Most
Members of the group were in favour of more exchange of information
in individual cases as compared to the current standard practices.
15
The relationship to the ad hoc Working Party on Tax Fraud raised by FISC 54
were discussed by the group. It was generally considered that the work already done
by this Working Party could be taken into account and that maybe the same
procedure, i.e. a questionnaire, could be followed.
a) Notification of APAs, rulings or any other advance agreements concerning transfer
pricing
16
It was generally recognised that unilateral APAs or other advance agreements
on transfer pricing is an area where there is particular interest in improving the
exchange of information. Several Members indicated that they do not conclude
unilateral APAs etc.
17
The OECD Transfer Pricing Guidelines (hereinafter referred to as the
“Guidelines”) discourages the use of unilateral APAs. In the light of this FISC 54
raises the issue of whether it would be useful if Member States were not to enter into
unilateral APAs etc. before having invited other states affected to conclude a bilateral
or multilateral APA, or if it would be sufficient if the other state was immediately
notified of such a unilateral agreement. Those Members that expressed a view
considered that Member States should not enter into unilateral APAs etc. covering
transfer pricing with companies of other Member States or with third country
companies. No Member objected to informing other Member States concerned either
before or immediately after concluding a unilateral APA etc.
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18
Members of the group consider that exchange of information of APAs with
third country companies would be relevant. However, with respect to such exchange
of information some Members expressed concern that there would be no legal basis
for exchanging such information. A number of Members considered one should seek
to provide for the right legal base.
19
It was mentioned that it is usual practice for third country companies – in
advance of deciding on the location of business - to approach several Member States’
tax authorities individually to obtain the best possible conditions.
20
A number of Members considered the reference to Member States concerned
in paragraph 17 of Annex I to doc. 13563/00 FISC 193 must be understood as having
a broad scope.
21
It was only briefly discussed how the expression necessary information in the
said paragraph 17 should be interpreted. In FISC 54 it is suggested that information
should be exchanged to the extent that it enables other Member States to apply the
arms length principle according to the Guidelines.
b) Notification of MNEs use of a transfer pricing method outside the OECD Transfer
Pricing Guidelines
22
This item was only subject to very limited discussion.
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