Transfer Pricing Reforms in the EU through BEFIT proposal


In Brief

As part of the European Commission’s (EC) directives package released on 12 September 2023, a transfer pricing directive proposal was introduced aiming to harmonise transfer pricing regulations of EU Member States (Member States) and to ensure a consistent application of the arm’s length principle within the European Union (EU or Union). In addition, a set of common tax rules was introduced for large multinational groups in the European Union (EU) through the Framework for Income Taxation (BEFIT) directive proposal.

Both the transfer pricing directive proposal (TP Directive) and BEFIT proposal will be applicable to taxpayers that are subject to tax in one or more Member States, including permanent establishments. Whereas the BEFIT proposal may take some time to be enacted, for the TP Directive, if accepted by the Member States, it could be enacted as soon as 2025.

A third proposal, the head office taxation system, has also been prepared as part of the EC directives package to allow small businesses to interact with a single tax administration when carrying out cross-border activities within the EU. As this proposal does not directly concern transfer pricing, it will not be further mentioned in this Flashnews.

What are the key elements of the Transfer Pricing Directive proposal?

Who is concerned?

The transfer pricing directive is applicable to all taxpayers following in the scope of the definition “associated enterprise” as described below.

What are the main points?

Arm’s length principle

The proposed definition of the arm’s length principle specifies that “an ‘associated enterprise’ means a person who is related to another person in any of the following ways:

  • A person participates in the management of another person by being in a position to exercise a significant influence over the other person; 
  • A person participates in the control of another person through a holding that exceeds 25 % of the voting rights; 
  • A person participates in the capital of another person through a right of ownership that, directly or indirectly, exceeds 25 % of the capital; 
  • A person is entitled to 25 % or more of the profits of another person.”

The proposed definition is broader than the current definition applied in Luxembourg.


The TP Directive proposes measures for corresponding and compensating adjustments, whereby semi-automatic corresponding adjustments should be considered by the Member States to mitigate the administrative burden.

Arm’s length range

The arm's length range is determined as the interquartile range of results obtained from third-party comparables. The objective is to work towards decreasing tax disputes by implementing a standardised approach for applying transfer pricing adjustments to the interquartile range whenever the results:

  •  Within the interquartile range: taxpayers should not be subject to transfer pricing adjustments unless a different specific positioning can be justified at arm’s length; and
  • Outside the arm's length range: Member States should make an adjustment to the median of the results unless a different specific positioning can be justified at arm’s length.

Transfer pricing documentation

At this stage there is no detailed set of rules of what should be included in the transfer pricing documentation but this will be further specified at a later stage. 

What are the key elements of the BEFIT proposal related to transfer pricing?

Who is concerned?

The new rules will be mandatory for groups operating in the EU with an annual combined revenue of at least €750 million. The ultimate parent entity should hold (in)directly at least 75% of the ownership rights or of the rights giving entitlement to profit.

For groups headquartered outside the EU, their EU group members would need to have raised at least €50 million of annual combined revenues in at least two of the last four fiscal years or at least 5% of the total revenues of the group.

For smaller groups the rules will be optional if they prepare consolidated financial statements.

What are the main points?

The BEFIT proposal provides for a transfer pricing simplification framework for BEFIT group members for which their intra-BEFIT expenses or income do not surpass a 10% increase compared to the average of the last three years.

The BEFIT proposal introduces a simplified transfer pricing framework for intra-BEFIT group transactions, with low-risk and high-risk zones and a 'traffic light system' for inter-company transactions outside the BEFIT group.

While harmonisation and compliance simplification aim to reduce administrative burdens, discrepancies in ownership thresholds (among others) and the use of EU benchmarks may lead to uncertainties in practice, especially when dealing with third-party jurisdictions.

Contact us

Caroline Goemaere

Tax Partner, Transfer Pricing, PwC Luxembourg

Tel: +352 49 48 48 3002

Christophe Hillion

Tax Partner, Transfer Pricing, PwC Luxembourg

Tel: +352 49 48 48 2031

Pawel Wroblewski

Tax Partner, Transfer Pricing, PwC Luxembourg

Tel: +352 49 48 48 4541

Marc Rasch

Tax Partner, Transfer Pricing, PwC Luxembourg

Tel: +352 49 48 48 3712