As part of its ongoing efforts to further harmonize transfer pricing rules within the EU, on 19 September 2012 the European Commission formally adopted the EU Joint Transfer Pricing Forum’s (“EU JTPF”) final report on Cost Contribution Arrangements (“CCAs”) on Services not creating Intangible Property.
While the OECD’s approach is basically oriented towards CCAs which create intellectual property (“IP”), the EU JTPF’s approach focuses more on services that do not generate intellectual property, such as IT, centralized procurement, financial, fiscal and other similar types of services.
According to the EU JTPF report, businesses might enter into this type of scheme to benefit from economies of scale or to share risks, resources and knowledge. Moreover, for the type of CCAs covered by the report “it is assumed that there is often a small difference between pricing at costs and at market value and it is therefore recommended for practical reasons to generally value the contributions at costs.”
Further on, the EU report emphasizes the importance of the “expected benefit test” which represents an essential element in assessing the arm’s length nature of the participants’ contributions to the CCA and in justifying the allocation keys used. Thus, one of the conditions mentioned by the report which sometimes faces practical difficulties is the existence of a consistency between contributions and expected benefits of the participants that should be assessed/proved before putting it into practice.
Considering a number of practical difficulties, the report is intended to bring a series of interpretations and recommendations on how to approach and assess the arm’s length character of the terms and conditions of such arrangements, as well as to facilitate a common approach within EU member states in respect of CCAs and to reduce potential cross-border disputes on such intra-group transactions.
However, it will be interesting to see when and how the recommendations in this report will be implemented in Romania in a consistent way without triggering disputes with the Romanian tax authorities.