In the respect of simplified measurements and safe harbours we analyzed:
• whether there are available exemptions from transfer pricing rules and transfer pricing adjustment,
• whether there are available exemptions from documentation requirements and from disclosure requirement, and simplified documentation,
• whether there are available simplified transfer pricing methods, safe harbour arm’s length range/rate and safe harbour interest rate,
• whether there are available simplified APA procedures and reduced APA charge, and
• whether there are available exemptions from penalty and alleviated penalties.
From the SMEs perspective, as it is obvious from the results (see Table5.2), the largest part of simplified measurements for SMEs is offered in case of documen- tation, particularly in 18 cases in 18 EU Member States. Exemption from docu- mentation requirements represents almost 14% (in 11 cases) and simplified documentation represents more than 9% (in 7 cases). Further, only Ireland and the United Kingdom exclude SMEs from transfer pricing rules (for more details see Table5.2). As regard APAs, only Romania offers reduced APA charges for micro entities. In Germany, reduced APA charges for small entities performing small
9For more details about simplified measurements see Chap.2—Transfer pricing rule for SMEs in the EU.
112 5 Safe Harbour as an Alternative Approach to Transfer Pricing of SMEs
Table5.2TransferpricingrulesinEUMemberStates(Deloitte(2016),PwC(2015),IBFD(2017)) MS TypeofsimplifiedmeasurementSafeharbourScopeofsafeharbour APAPenaltyTP rulesTP methods
Documentation
Arm’s length rate range
Exemption fromTP rulesSimplified TPmethod Small transactionsSMEs
Low value adding servicesLoansOthers SimplifiedExemptionABCDE AT✓Ba CC✓✓ BE✓Ba CC✓✓ BGBb,cAa✓✓ CZ✓CCC✓ DK✓Aa ,Bc CC✓✓✓ DEA,B✓Bd,ECC✓✓✓✓ EEBc ✓ ELBa Aa ,Bd ,E✓✓✓ ES✓Ba,CAa,ECC✓✓✓✓ FI✓AaBaCC✓✓✓ FRBB✓CC✓✓ HRNone HU✓✓CAa,Bd,ECC✓✓✓✓ IE✓B✓ ITBa ✓ LVBa✓ LTBa ✓ LU✓CC✓ NLB✓CCC✓✓ PLCAa,Ba,dE✓✓✓✓ PTBa ✓ (continued)
Table5.2(continued) MS TypeofsimplifiedmeasurementSafeharbourScopeofsafeharbour APAPenaltyTP rulesTP methods
Documentation
Arm’s length rate range
Exemption fromTP rulesSimplified TPmethod Small transactionsSMEs
Low value adding servicesLoansOthers SimplifiedExemptionABCDE ROBb ✓Aa CC✓✓✓ SIB✓BD,CC✓✓✓ SKBc✓ SE✓Aa CC✓✓ UK✓✓ECBc C✓✓✓ Note:MaltaandCypruswereexcludedfromtheresearch a Basedonthestatutorythresholdsrelatedtorevenue,costsorturnover b Formicroentities c Underspecialconditions d Formicroandsmallentities
114 5 Safe Harbour as an Alternative Approach to Transfer Pricing of SMEs
transactions10are also available. Furthermore, in France and the Netherlands,11the simplified procedures of APA are offered for SMEs. Regarding a penalty, only Slovenia and France use an alleviated penalties regime for SMEs. Altogether, simplified measurements for SMEs were introduced in 26 cases in 22 EU Member States that account for almost 34%.
However, no simplified transfer pricing method or safe harbour arm’s length range/rate is available for SMEs in EU Member States. This type of measurements is usually related to low value adding services and loans.
Further, small transactions cover the second largest part of simplified measure- ments (used 10 times, in 10 EU Member States). In addition, Croatia did not introduce any simplified measurements. Therefore, it is recommended to introduce at least some simplified measurements for low value added services that should reflect the TP Guidelines or the EU Joint Transfer Pricing Forum Guidelines on Low Value Adding Intra-Group Services.
However, based on the results it is further debatable whether in case of docu- mentation requirements for SMEs, they should be harmonized in the whole EU or left in its current form. In case of the harmonization, this should mean that the Czech Republic, Croatia, France, Luxembourg, Netherlands, Romania and Sweden should also introduce documentation simplified measurements for SMEs or exempt under special conditions SMEs form the obligation to prepare transfer pricing documentation and follow current trend in the rest of European Union.
Finally, it was found that the EU Member States use a different definition of SMEs for transfer pricing purposes, notwithstanding, that there is a general EU definition for SMEs stated in Article 2 of European Commission Recommendation 2003/361/EC. It makes a situation even more complicated and increases compli- ance costs of taxation. However, every EU Member States has to take special care regarding the process of defining SMEs so that no LEs are classified as SMEs in the country. Hence, different SMEs definitions for transfer pricing purposes can occur so that no LEs apply simplified measurements.
According to the fact that SMEs are not able to ensure all required information related to transfer pricing issues, specifically comparable and functional analysis due to the lack of human and financial capital and born higher compliance costs12of taxation than LEs, the introduction of safe harbour in the form of an arm’s length range can be seen as a suitable solution.
10For small taxpayers (those with intercompany tangible goods transactions below EUR 5,000,000 and other intercompany transactions below EUR 500,000) the filing fee is half of the general APA fee.
11To simplify the process of APA, the tax authorities assist the taxpayer to find comparables.
12For more details about compliance costs of taxation see Chap.4—Compliance Costs of Transfer Pricing for SMEs.