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Brussels, 14 September 2009

Company taxation: The European Commission proposes a revised Code of Conduct for applying the Arbitration Convention to improve prevention of double taxation.

The EU Commission has adopted today a Communication based on the work achieved by the EU Joint Transfer Pricing Forum. The Commission and the Forum consider that the elimination of double taxation linked to transfer pricing adjustments is facilitated by constant monitoring of problems occurring in practice. Such an exercise led to several improvements on the interpretation of the Arbitration Convention's provisions incorporated in the proposed revised Code of conduct, in particular on the reduction of the timeframe for case resolution.

"Businesses are devoting more and more resources to transfer pricing compliance; I am pleased with the work achieved by the expert group in the area of dispute resolution and with the revised Code of Conduct we propose, which will further facilitate elimination of double taxation of company profits and ensure a more consistent enforcement of transfer pricing rules." said László Kovács, Commissioner for Taxation and Customs Union. "I urge Member States to endorse the recommendations of the revised Code and to implement them in their legislation or administrative practices"

The Commission proposal is the result of a monitoring exercise on the application of the Arbitration Convention (AC). Based on Member States' practical experience it was recognised that the three-year target for resolution of the cases, was proving difficult to achieve.

The revised Code clarifies and provides common interpretation of some provisions of the AC in order to facilitate resolution of many more cases within the three year time frame.

The proposed common interpretation covers the following topics: serious penalties, the scope of the AC (triangular transfer pricing and thin capitalization cases), interest charged/credited by tax administrations when a case is dealt with under the AC, the functioning of the AC (as regards rules about the deadline for the setting-up of the Advisory Commission and criteria for establishing the independence of arbitrators), the date from which a case is admissible under the AC and the inter-action of the AC and domestic litigation.


When associated companies trade across borders, it is not always easy for the companies or tax administrations to determine the prices to be used. Differences between Member States' transfer pricing rules may lead to inconsistencies in the internal market and additional administrative burdens on taxpayers, where the taxpayer may be taxed twice on the same income – so called double taxation. Specifically, double taxation arises from disputes between taxpayers and tax administrations, over what amount of profit should be taxed and where the tax should be paid.

The Commission therefore created in 2002 the EU Joint Transfer Pricing Forum on business taxation ( IP/02/1105 ) in order to reduce the high compliance costs and to eliminate the double taxation that often arises in the case of cross-border intra-group transactions.

The Forum is composed of experts from national tax administrations and the business sector, under an independent Chairman. The mandate of the Forum runs until March 2011.

For further information on the Communication and on the works of the EU Joint Transfer Pricing Forum see:

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