Mr. Philip Kermode:

There is a question not only of the rules, but also of what they must be applied to and the facts of the case. In many instances, it is not easy to find a comparable transaction to the one being examined between related parties. This poses a difficulty. The concept is relatively straightforward. What the tax administrations or, at least, the transfer pricing rules are seeking to do is create a so-called arm's length relationship between group company members that would be similar to that between two third parties carrying out a business. By the nature of large groups, complex transactions are conducted, some of which may not make sense in a normal environment between third parties. Putting a value on them is a difficult task.

For this reason, the idea of a formal apportionment was proposed as part of the discussions on a common tax base that the Commission tabled. The intent was to cut through all of the attempts at creating artificial distinctions and find a formula that people could accept. We are discussing the allocation of profit between different jurisdictions in a situation that, by its nature, is somewhat different from a third party-to-third party transaction.

The Union's arbitration convention has existed for many years and has attempted to provide some form of arbitration in the case of transfer pricing disputes. Perhaps this aspect has not been touched on at this meeting in the context of BEPS. Dispute resolution would be an important aspect, particularly if the new rules turned out to be relatively complex. There will have to be some system that ensures, for example, that companies do not end up paying for a situation in which tax administrations are at loggerheads. This situation can arise. Anything that moves the issue in the direction of simplification has to be good. We in the Commission are still pondering how to pursue this idea of arbitration in a way that would be well balanced between the interests of business and administrations.