Transfer Pricing Rules for SMEs in the EU

Abstract

The aim of this chapter is to provide the background of transfer pricing rules from both the theoretical and practical points of view. The arm’s length principle is considered a key pillar of the rules; therefore, great emphasis is placed on explaining these rules as well as their history and practical application. The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter TP Guidelines) provide guidance for applying the arm’s length principle to pricing for tax purposes and to cross-border transactions between associated enterprises; therefore, the chapter provides a detailed explanation of the TP Guidelines, particularly a comparability analysis, which is considered the core issue in the application of the arm’s length principle, transfer pricing methods, and documentation requirements and administrative approaches to transfer prices. However, TP Guidelines make no direct distinction between types or sizes of multinational enterprises; i.e., all enterprises, regardless of their size, are subject to the same principles and recommendations. Therefore, the chapter also focuses on transfer pricing rules in relation to SMEs, critical concerns in transfer pricing and compliance costs issues. The last part focuses on recommendations, namely, an introduction of safe harbour and common (consolidated) corporate tax base.