Since 2002, the Dutch legislation has allowed the tax authority to adjust the pricing set between related parties if those prices aren’t at arm’s length. The main article that governs those transfer pricing regulations is Article 8b of the Corporate Income Tax Act of 1969 (CITA).
The Dutch tax authority generally applies the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the OECD guidelines). While they aren’t binding, courts tend to give them significant weight.
Arm’s length principle
The arm’s length principle is defined in Article 8b of the CITA, stating that the conditions set in a controlled transaction (i.e. a transaction between related parties) should match the conditions that would’ve been set between independent parties.
Related party definition
Article 8b of the CITA is applicable when an entity participates, directly or indirectly in the management, control, or capita of another entity. There aren’t specific definitions or rules that elaborate on what exactly this means.
Note that the application of this article is limited to entities (e.g. companies, trusts, etc.), and doesn’t include individuals. In addition, this article applies to both domestic and international transactions.
Transfer pricing methods
The applicable transfer pricing methods are outlined in paragraph 3 of the Transfer Pricing Decree, April 22, 2018, 2018-6865 (The TP Decree). This paragraph refers to the OECD guidelines and allows the usage of the following methods:
- Comparable uncontrolled price method
- Resale price method
- Cost plus method
- Profit split method
- Transactional net margin method
There is no hierarchy of methods. The choice between them should be made according to the “best/most appropriate method” rule.
Meaning, choosing a method that can, under the circumstances of the case, provide the most accurate representation of the arm’s length range.
Comparability analysis
As discussed in the TP Decree, the Dutch guidelines regarding comparability analysis are very similar to those outlined in the OECD guidelines.
The Dutch tax authority allows the use of internal and external comparables. When using external comparables, the Dutch tax authority requires the data sources to be publicly available.
The databases that the Dutch tax authority is familiar with, include Dijk Electronic Publishing’s Amadeus and Orbis databases, Bloomberg, Moody’s RiskCalc and LossCalc, etc. The taxpayer is allowed to use other databases as long as they are publicly available.
Due to the small size of the country, usually there aren’t enough Dutch comparables. Therefore, the Dutch tax authority tends to accept European comparable entities.
Documentation requirements
The documentation requirements are detailed in Article 29b–29g of the CITA, and in Decree of December 30, 2015, no. DB/2015/462M.
Local and master flies have to be prepared if the group’s consolidated revenue is above 50 million euros. The preparation deadline is the tax return filling due date. The information they should contain is in line with what is written in the OECD Guidelines.
In addition, for fiscal years starting January 1, 2016, multinational enterprise groups with annual revenue of 750 million euros or over, and a Dutch ultimate parent entity need to submit a Country-by-Country report.
Safe Harbours
Similarly to the provisions of the OECD guidelines, the TP Decree also provides several safe harbours. Those safe harbours are described in paragraph 6 and include shareholder activities, low-value-adding services, and contract research.
Shareholder activities are activities that are performed at the capacity of shareholders and aren’t considered group services. This is because they don’t add economic or commercial value to the group entities. For example, organizing shareholder meetings, Works Council activities, and more. The group entities should be charged for those activities.
Low-value-adding services are services of a supportive nature that fit the characteristics set in the TP Decree. The remuneration for those services should be a 5% markup on the relevant costs.
Contract research is a situation where one company contractually develops intangibles for another company. If certain conditions are met, a remuneration based on the costs can be charged.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Both APAs and MAPs are available in the Netherlands.
APAs are agreements made between the taxpayer and the tax authorities, in advance, to avoid tax disputes regarding transfer pricing methodology.
The Dutch tax authority offers three types of APAs:
- Unilateral APA – between the taxpayer and the Dutch tax authority.
- Bilateral APA – between the taxpayer, a foreign related party, the Dutch tax authority, and the foreign tax authority.
- Multilateral APA – between the taxpayer, two or more foreign related parties, the Dutch tax authority, and multiple foreign tax authorities.
The taxpayer can choose which type to request, but the Dutch tax authority prefers the Bilateral APA.
MAPs are agreements made after an incident of double taxation has occurred, when a taxpayer believes that the taxation they are subject to is inconsistent with the treaty. The Dutch tax authority will examine the case and will decide what the appropriate action is; whether to decline the request, provide unilateral relief, or contact the other tax authority to negotiate a bilateral solution.
The goal of the Dutch tax authority is for the MAP procedure to be done as soon as possible, aiming to do so in up to two years. However, the duration of the procedure largely depends on the corporation of the other jurisdiction.
If both tax authorities can agree on a solution, it will be presented to the taxpayer. The taxpayer can choose to accept or reject it.
Approach to transfer pricing audits
Tax Audits in the Netherlands are typically held after the filing of the tax return. However, it is common for those discussions to develop and end up covering more years, even if the tax return for them hasn’t been filled.
In case the audit includes transfer pricing adjustments, the Dutch tax authority will usually assess their impact on years that the taxpayer hasn’t filed returns.
The duration and scope of the audits change depending on their reason and the information available. The purpose of the audit varies, for example, to settle the taxpayer’s tax position, gather information about different taxpayers, etc. The tax authority must inform the taxpayer of the purpose of the audit.
Penalties
If the Dutch tax authority can prove that the reported profit is incorrect, it can adjust it. The adjustment is allowed even if the taxpayer has all the required documentation.
Penalties can be imposed if the incorrect report was intentional. The penalty rate changes according to the misdemeanor.
If the documentation requirements aren’t met the taxpayer might be subject to a penalty of over 21,000 Euros (2020). If a CbC Report wasn’t submitted the taxpayer might be subject to a penalty of up to 870,000 Euros (2020).
Taxation at a glance
The tax authority of the Netherlands is the Belastingdienst and is responsible for the collection of taxes.
The table below provides a summary of the main taxation rates related to businesses:
Tax type | Tax rate |
Corporate tax | 19%/25.8% |
VAT | 21% |
Withholding tax on dividends to non-residents | 15% |
Withholding tax on interest to non-residents | 0%/25.8% |
Withholding tax on royalties to non-residents | 0%/25.8% |
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