Executive summary

On 24 September 2025, the European Commission updated its website to publish additional information regarding the European Trust and Cooperation Approach (ETECA or the Program). The Program seeks to bring together tax administrations of participating European Union (EU) Member States and taxpayers in a transparent environment to foster a preventative dialogue, enabling tax administrations to conduct a common risk assessment based on high-level information of the transfer pricing policy adopted by multinational enterprise (MNE) groups.

Following this release of additional information, EU Member States and the European Commission are preparing to commence the Second Pilot of ETECA, tentatively in January 2026. Eligible MNE groups may express their interest to participate with the relevant EU tax administrations.

Detailed discussion

Background

The ETECA initiative is a voluntary, nonlegislative framework designed to foster enhanced cooperation, trust and transparency between taxpayers and EU tax administrations, primarily focusing on high-level risk assessment of transfer pricing policies adopted by large MNEs.

The ETECA was launched in response to the European Commission's 2020 Action Plan for fair and simple taxation, which recognized the need for a balanced approach by maintaining robust anti-tax avoidance measures but also providing support for compliant businesses to fulfill their tax obligations in a more collaborative, efficient and less-burdensome way. The ultimate aim of ETECA is to allow businesses to focus on job creation, investment and innovation. The ETECA guidelines were published in October 2021 and subsequently revised in May 2025.

The Program builds upon experiences with similar models, such as OECD's International Compliance Assurance Programme (ICAP) and Finland's cross-border dialogue, but takes into considerations the specifics of the EU internal market and is tailored to leverage the EU's administrative cooperation mechanisms.

Three phases

The Program consists of three phases: (1) the admission phase; (2) the risk assessment phase; and (3) the outcome phase. The admission phase is intended for identifying eligible MNE groups, the participating EU Member States, the covered transactions and the covered period(s). Taxpayers wishing to participate in the Program must make a formal application to the Member State where the ultimate parent entity (UPE) of the MNE group is located (also called the Coordinating Member State) and prove that they are eligible for the Program. The covered period is the last fiscal year of the MNE group for which documentation is already available or will be available during the admission phase of the Program; the participating Member States must decide how many past-looking periods are necessary to perform a meaningful high-level risk assessment. The admission phase has a timeframe of four to eight weeks.

During the risk-assessment phase, the tax administrations of the participating EU Member States review the compliance of the MNE group, including the functional analysis and coherence of the transfer pricing methodology. In most cases, this review results in a common risk assessment of either "low-risk" or "non-low risk." If no common understanding can be reached on the risk classification, the Member States enter an issue-resolution stage aimed at reaching a common understanding on the risk classification. The risk-assessment phase has a target timeframe of 22 weeks.

Finally, during the outcome phase, the common risk assessment is incorporated into a final summary report agreed upon by all the participating tax administrations. The outcome of the risk assessment is sent to the MNE group and is valid for the covered period(s) plus the two following fiscal years if there are no material changes in the facts or national tax legislation. The outcome phase is aimed at giving practical tax certainty and does not provide participating MNE groups with the type of legal certainty that may be obtained through other bilateral or multilateral tools, such as bilateral or multilateral advance pricing agreements (APAs), joint tax audits or mutual agreement procedure (MAP)/arbitration. Rather, "the low-risk classification of transactions should be taken in due consideration in case of future audits" by the tax authorities of Member States, and "[p]articipating Member States should guarantee adequate internal coordination with local auditors in order to achieve this result," according to the ETECA guidelines. The target timeframe of the outcome phase is four to eight weeks.

Second Pilot Phase

Following the ETECA's First Pilot Phase, which was launched in November 2021 and involved 14 EU Member States and three volunteering MNEs, EU Member States together with the European Commission are preparing to launch the Second Pilot of ETECA.

On 24 September 2025, the European Commission held a stakeholder conference to provide further information on participation in the Second Pilot, including details about the initiative and its benefits. During the stakeholder conference, three Member States shared their experiences in the First Pilot from a tax administration perspective. The three volunteering MNEs shared their experiences from a taxpayer perspective.

Eighteen EU Member States are participating in the Second Pilot Phase: Austria, Belgium, Bulgaria, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Latvia, Luxembourg, Netherlands, Poland, Portugal, Slovakia, Slovenia and Spain. One other Member State is interested in the Program but is not able to join the Second Pilot.

During the stakeholder conference, the European Commission presented the main changes to the Program guidelines. These changes relate to the personal scope of the Program, the role of tax advisors, the aim of the common risk assessment and the issue-resolution stage.

Under the revised ETECA guidelines, an MNE group's suitability for the Program is considered on a case-by-case basis by the tax administrations involved. In principle, the Program is aimed at MNE groups with a tax footprint in the EU. In general, the Program is targeted at MNE groups with a global total consolidated group revenue exceeding €750m, i.e., those subject to Country-by-Country Reporting (CbCR) and DAC4. However, MNE groups with lower total global consolidated group revenue may also be accepted if they can provide similar information to that contained in CbCR.

Under the tentative timeline, the Second Pilot starts in January 2026, with an admission phase expected to last from four to eight weeks, a risk-assessment phase expected to start in March 2026 and an outcome phase expected to start in September 2026. The risk-assessment phase may be extended, if necessary.

Implications

The launch of the Second Pilot of ETECA provides an opportunity for MNEs to participate in the pilot. Taking part in the Second Pilot may result in greater certainty for MNEs in their international operations, in particular in the EU, helping to prevent double taxation and reduce tax compliance costs.