Ref. Ares(2016)3129943 - 30/06/2016
Code of Conduct (business taxation)
Transfer Pricing – Transparency and Exchange of Information
The ECOFIN Council at its meeting the 26-27 November 2000 approved the
conclusions in Presidency Note of 20 November to the ECOFIN Council (13555/00
In the context of transfer pricing the Presidency Note includes the following
The Presidency accordingly proposes that the Council:
(6) ask the Group to look into the question of transparency and the
exchange of information on transfer pricing as referred to in paragraph
17 of Annex I to the report 13563/00 FISC 193.
Paragraph 17 of Annex I to 13563/00 FISC 193 (hereinafter referred to as
Paragraph 17) has the following wording:
17. In relation to transparency and the provision and exchange of
information concerning transfer pricing, regard should also be had, in
accordance with paragraph B4 of the Code to the OECD’s Transfer
Pricing Guidelines and, in particular, to Chapter 4 (“Administrative
approaches to avoiding and resolving transfer pricing disputes”).
Member States shall inform each other yearly about the use of the transfer
pricing guidelines in practice and the number and kind of Advance Pricing
Arrangements concerning transfer pricing. Information on procedures
regarding Advance Pricing Arrangements should be exchanged as well
among Member States. If a Member State has agreed to an Advance
Pricing Arrangement, ruling or any other advance agreement concerning
transfer pricing, it should automatically notify all other Member States
concerned and provide them with all necessary information. The same
principle should apply to Member States when after either an application
or on examination they become aware that a company has used a transfer
pricing method that is outside the OECD transfer pricing Guidelines.
Member States should inform the Member States concerned of any such
Paragraph 17 establishes a framework for the Code of Conduct group to
continue its work in the transfer pricing area. The framework clearly identifies some
specific elements of possible improvements with respect to transparency and
exchange of information within the transfer pricing area. These elements are the so-
called “agreed elements” as mentioned in the document 5670/01 FISC 11.
The services of the Commission find that these elements generally are well
chosen being specific areas where (tax authorities of) Member States do not, or only
very rarely, provide public available information or exchange information with other
Member States. There might be other elements as well – and a few of these has been
included in the note - but generally these specific elements listed in Paragraph 17
provide for a solid starting point.
In that context it should also be mentioned that the agreed elements in
Paragraph 17 generally are in line with the OECD’s draft application notes on transfer
pricing1 and rulings2 which were discussed at the meeting of the Forum on Harmful
Tax Practices the 6-9 February 2001.
Objective for the Subgroup
Whilst the agreed elements, as mentioned, are quite specific in their wording,
they to a certain extent require some interpretation to establish the precise content. It
may also – in more procedural/practical terms – be necessary to decide how the
exchange of information etc. should be structured. The main objective for the
Subgroup A will be to suggest to the main Code Group the precise content of the
agreed elements including how to apply these in more practical terms.
Paragraph 17 makes a general distinction between yearly exchange of
information among all Member States and ad hoc exchange of information to
concerned Member States. In both cases exchange of information will take place
automatically. Below is outlined the structure of the transparency and exchange of
information including points of interpretation.
Yearly information system
This part requires automatic exchange of information among all Member
States. To streamline the process it may be feasible to develop some kind of standard
reporting scheme including a checklist. The question of when and how the
information should be exchanged must also be explored further.
Practical application of the OECD Transfer Pricing Guidelines
Given the high importance of transfer pricing in the international tax area in
general, and for the harmful tax competition area in particular, it will be useful that
each Member State in general describes its “transfer pricing system”, including how
the OECD Transfer Pricing Guidelines are applied. For Member States that have not
issued regulations, circulars or any other kind of guidance describing how the
guidelines are applied such material may also serve as a basis for information for the
public. This will secure transparency of Member States’ transfer pricing systems.
It has to be developed further what pieces of information (and in what detail)
should be included. The information naturally should focus on some of the specific
features of transfer pricing that generally are of interest in the context of harmful tax
practices. A non-exhaustive illustrative list could include:
• An introduction including a description of the legal framework;
• [Description of areas (if any) where the OECD Transfer Pricing Guidelines are
• Application on transfer pricing methods (including but not limited to the
practical use of the cost-plus method and the resale-minus method);
• General rulings;
• Safe harbours;
• Documentation requirements;
• Administrative aspects including for instance audit aspects (performed audits,
audit capabilities, the “depth” of the audits, the use of simultaneous audits).
The Subgroup may find it useful to discuss further which information should be
included (and circulated amongst Member States).
The number and kind of Advance Pricing Arrangements
of APAs seems to be pretty straight forward, the kind
APAs may need some further thoughts. The OECD Transfer Pricing Guidelines make
a distinction between unilateral, bilateral and multilateral APAs; the information
should cover all these three types of APAs.
It might be useful if the information on the bilateral and multilateral APAs
included the names of the other countries (including non-EU countries) that are
parties to them. A disclosure of the identity of the tax payer involved in APAs will be
important as it would enable other tax administrations, which, within their
jurisdictions host affiliated companies to ask for further information. In case of a
unilateral APA, disclosure will also be required according to the ad hoc information
system (see below). Whether the ad hoc information system – in the case of a bilateral
or multilateral APA – will also require disclosure to tax authorities hosting affiliated
companies not directly engaged in the transaction(s) covered by the APA, depends on
the whether such companies are considered to be “concerned” (see this discussion
below). Whether or not such affiliated companies are “concerned” or not, it might still
be important to include tax payer identities in the yearly reporting system in order for
Member States to gain an overview.
It may also be useful to have information about the business areas covered by
the APA (e.g. banking, insurance, manufacturing etc.) and about the nature of the
transaction covered by the APA (i.e. sale of goods, services, cost contributions
[The question of disclosure of taxpayers identity, business area etc. does not
seem to cause confidentiality problems, as the information would only include
statistical material not detailed enough to reveal any business secrets. Furthermore, as
exchange of information is not required until after the APA is concluded, there will
not be a problem of revealing investments decisions.]
The wording of Paragraph 17 does not cover ATRs. However, there would be
good reasons to also include ATRs in the yearly information system. An ATR
covering transfer pricing aspects, is in principle very like a unilateral APA and in
relation to harmful tax practices it has the same problematic features. Furthermore, in
practice the distinction between a unilateral APA and an ATR may be difficult to
apply. It would therefore make sense to extend the yearly information system also to
The Subgroup may find it useful to discuss further which information should be
included (and circulated amongst Member States).
Procedures for Advance Pricing Arrangements
In order to improve transparency and provide equal treatment to taxpayers,
countries should publish the procedures for APAs. Some Member States have already
done so and for these Member States this information would serve as a basis for the
information that should be exchanged with other Member States. Other Member
States, which enter into APAs, but have not published the APA procedures, should be
invited to do this. In this context, regard should be had for the 1999 Annex to OECD’s
Transfer Pricing Guidelines which includes detailed guidance on how countries
should establish their APA procedures. In describing their APA procedures, Member
States should in general pay close attention to this guidance.
However, the Subgroup may find it useful to discuss further which information should
be included in the description of APA procedures (circulated amongst Member
Ad hoc information system
This part will require a Member State automatically to notify “concerned”
Member States about certain agreed elements and to provide such Member States with
any necessary information. Whereas it seems less relevant with a standard reporting
scheme, it might still be useful to try to develop a checklist and some guidelines of
when and how information should be exchanged. These issues should be explored
A general question is when a Member State qualifies as “concerned”.
Concerned can naturally be interpreted as “affected by”. There seem to be 2 different
approaches to take. The tax authorities of the other affiliated company (or companies)
directly engaged in a transaction (or transactions) which is covered by a (unilateral)
APA or ATR is “affected by” the APA, and notification including necessary
information will therefore be required. (Obviously, there is no need for notification
among tax authorities engaged in the same bilateral or multilateral APA).
However, the tax authorities of any affiliated company to the company (or
companies) concluding an (unilateral, bilateral or multilateral) APA/ATR, might also
be “affected by” the APA/ATR. This is most obvious if such company (or companies)
engage in identical or similar transactions (as those covered by the APA/ATR), as the
MNE in practice often will apply the transfer prices covered by the APA as a basis for
the transfer prices to the remaining affiliated (EU) companies. In this context it should
also be mentioned that transfer pricing documentation requirements often will request
the tax payer to provide information of any APA/ATR that affiliated companies have
concluded with other tax authorities.
The need for automatic notification to tax authorities of affiliated companies
not directly engaged in the transaction covered by an APA/ATR will also depend on
which information is disclosed under the yearly information system. If the identity of
the taxpayer is disclosed it will enable (other) tax authorities wishing so to submit a
request for exchange information; thus reducing the need for a automatic notification
including submitting necessary information.
Notification of APAs, rulings or any other advance agreement covering transfer
This element requires that a Member State having concluded an APA, ruling
or any other advance agreement covering transfer pricing, notify other “concerned”
and provide them with all necessary information. The precise scope of this element
depends as discussed above on how “concerned” is to be interpreted.
Apart from identification of the taxpayer, “necessary” information is
information required to establish whether the APA etc. is in line with the OECD
Transfer Pricing Guidelines including the arms length principle. Although, the level
of information necessarily will vary from case to case, it should generally include all
the relevant information elements required for a proper arms length evaluation.
The Subgroup may consider in more detail which information it will be necessary to
Notification of MNEs application of method not in line with the OECD Transfer
This element requires a Member State to notify and provide necessary
information to other concerned Member States in all cases where the Member States
discover that a MNE has used a transfer pricing method “not in line” with the OECD
Transfer Pricing Guidelines. A Member State could discover such a discrepancy after
an audit or where a request for APA/ATR does not lead to conclusion of an APA. The
scope of this element depends as discussed above on how “concerned” is to be
The issue of whether a transfer pricing method is not in line with the OECD
Transfer Pricing Guidelines, covers quite clearly the features that led to a positive
evaluation of potential harmful measures in the Member States against criteria B4 in
the Code, e.g. inappropriate use of the cost-plus method or the resale-price method.
3 A similar notification requirement is proposed in the OECD draft application note on rulings (for
ATRs see paragraph 50; for APAs see paragraph 55). However, it should be noted that provision of
further information is not automatically required but subject to a request.
However, in principle it could also cover other cases where a MNE has used a method
– which according to facts and circumstances of the case – is not the appropriate
transfer pricing method.
It’s difficult to foresee the information burden that such a requirement would
impose on Member States, but it could be substantial. Furthermore, there could be
some overlapping to cases where the tax authorities – having discovered such a
discrepancy – make an income adjustment. It could therefore be considered whether
to limit the procedure to certain business areas (e.g. the financial and service sector)
and/or to certain thresholds (e.g. only transactions over a certain amount), and not to
include other cases where a tax authority makes an income adjustment. Other
differentiations could also be considered.
The Subgroup may find it useful to consider the scope of this element and which
information it will be necessary to provide.
This section describes one further element, already covered by the OECD
Transfer Pricing Guidelines and the OECD Applications Note on Rulings, which also
could be included in the ad hoc information system. However, it should be noted that
there are likely to be other elements, which it could also be useful to include.
According to the OECD Transfer Pricing Guidelines4 and the Application
Note on Transfer Pricing5, unilateral APAs should whenever possible be either
avoided or converted into bilateral or multilateral APAs. Where unilateral APAs are
permitted (competent) tax authorities of other interested jurisdictions should therefore
be informed about the procedure as early as possible to determine whether they are
willing and able to conclude a bilateral APA. The same issue arises with ATRs
covering transfer pricing issues.
The Subgroup might discuss whether it would be useful to include a rule which
requires Member States not to enter into bilateral APAs (or ATRs) before having
4 Chapter 4, Paragraph 4.13.
invited interested competent tax authorities to conclude a bilateral (or multilateral)
APA, or whether they would consider including any other element in the information
Evidence on agreed elements
As mentioned in paragraph 11 in the Chair’s note to the Code of Conduct
meeting on 1st February 2000 (5670/01 FISC 11), the Commission is responsible for
providing evidence of the agreed elements to the main Code Group. This is also
reflected in Point 2 iii) of the minutes to this meeting (6078/01 FISC 21).
To enable the Commission to meet this responsibility, members of the Subgroup are
invited to provide information to the Commission on the current status with respect to
transparency and exchange of information on each of the (5) agreed elements in
5 E.g. paragraph 50 and 55.