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Guidelines on Transfer Pricing – Frequently Asked Questions

Zone(s): Europe ¦ Sector(s): Finance
[4 June 2014, Europa website] On 4 June, Europa published FAQs on Transfer Pricing.

What is transfer pricing?
Transfer pricing refers to the terms and conditions surrounding transactions taking place within a multi-national company. It concerns the prices charged between associated enterprises established in different countries for their inter-company transactions, i.e. transfer of goods and services. Since the prices are set by associates within the multi-national company, it may be that the prices do not reflect an independent market price.

This is a major concern for tax authorities who worry that multi-national entities may set transfer prices on cross-border transactions to reduce taxable profits in their jurisdiction. This has led to the rise of transfer pricing regulations and enforcement, making transfer pricing a major tax compliance issue. The approach adopted by EU Member States to evaluate the price of inter-company transactions is that of the arm’s length principle. The arm’s length principle requires that the prices used in inter-company transactions should correspond to the prices that would have applied between independent enterprises for the same transactions (market price).

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