EU Investigate Members' TP Rulings under State Aid

The EU Commission released a working paper identifying problematic areas in profit allocations and arm’s length standard across Member States’ transfer pricing rulings. The working paper investigates whether certain rulings would be prohibited under EU's state aid rules.


The working paper follows the Notice of the European Commission published on May 19, 2016, which regards the notion of State aid as referred to in Article 107(1) TFEU. This guidance helps Member States and companies identify public investments that qualify as state aid.

Member States’ fiscal measures of general nature that apply to all cases without distinction are considered autonomous and cannot constitute state aid. However, if the measures constitute selective advantages for particular undertakings, they are considered to be discriminative to other taxpayers and so fall under state aid.  

Arm's Length Principle Across Member States

The Internal Working Paper provides background to the Commission's investigation of advantageous fiscal regimes that could be prohibited under its state aid rules. The European Commission is concerned whether countries follow the arm's length principle when approving transactions between subsidiaries of multinational companies.

"We have seen some examples of unrealistic transfer prices, without any sign that the authorities had a convincing reason to accept them. That's where state aid can be involved and where the Commission does have to act," EU competition commissioner, Margrethe Vestager said. 


One of the concerns of the Commission is APAs issued to group financing companies whose only activity is the passing-on of funds or intellectual property rights from one group company to another. Other concerns include rulings which endorse tax deductions for payments or charges between group companies, even where such payments are not actually made. The Commission working paper further identifies the inappropriate use of the comparable uncontrolled price method (CUP) and the Transaction Net Margin Method (TNMM).

Sources: European Commission - DG Competition Working Paper, Out-Law

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