Does your country have transfer pricing rules vs. ruling, laws and guidelines?
The arm’s length principle and transfer pricing documentation requirements are enacted in article 8b of the Dutch corporate income tax act. In general, the Netherlands follows OECD guidelines1. Various decrees2have been issued to explain the policy and to provide guidance. Transfer pricing regulations apply to all related party transactions without a threshold in which an entity subject to Dutch corporate income tax is involved.
Effective date of commencement of transfer pricing regulations
Transfer pricing regulations are effective since 2002 in the Netherlands.
Rulings, laws and guidelines
Besides legally binding articles of the Dutch tax law, several decrees provide insight into the position of the tax authorities without a legally binding effect.
These decrees regard to general guidance on the application of the OECD Guidelines
(IFZ2001/295M); intercompany services, valuation of intangibles, contract R&D (IFZ2004/680M);
advance pricing agreements (IFZ2004/124M);
financing companies (IFZ2004/126M and IFZ2004/127M); mutual agreement procedures (IFZ2008/248M); and attribution of profits to permanent establishments (IFZ2010/457M).
Is transfer pricing documentation required? If so, what information should be included?
Taxpayers are obliged to prepare transfer pricing documentation and to keep it in their accounting records. The transfer pricing documentation should describe how transfer prices have been determined and include information which enable the tax authorities to evaluate the arm’s length nature of the transactions. Parliamentary history provides the following examples for the content of such
documentation: business description, organizational structure, functional (including risk) analysis, industry analysis, contractual terms and conditions of the transactions, financial performance,
information on the intercompany transactions, substantiation of transfer pricing method and prices actually charged.
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1 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, 1995 and subsequent updates
2 APA decree, IFZ2004/124M; ATR decree, IFZ2004/125M; Decree regarding financial service activities, IFZ2004/126M; Questions and answers on the decree regarding service entities and grandfather regime ruling policy, IFZ2004/127M; Decree on advance certainty and good faith versus treaty partners, DGB2004/1337M; Decree on APAs, advance tax rulings (ATRs), financial services entities, interposed holdings, contact point potential foreign investors, organization and competency rules, DGB2004/1338M; Implementation decree regarding the Coordination Group Transfer Pricing, DGB2004/1339M; Adjustments to the transfer pricing decree of 30 March 2001, application of the arm’s length principle and the OECD guidelines, IFZ2004/680M; Accelerated Mutual Agreement Procedure decree, IFZ2008/248M decree on profit allocation to permanent establishments (PEs), IFZ2010/457M.
What are the deadlines for documentation preparation?
The documentation should be available at the time when the company enters into a transaction. Absent (sufficient) documentation the burden of proof will shift from the Dutch tax authorities to the taxpayer to demonstrate that the transfer prices are at arm’s-length. However, if the documentation is not available upon request of the tax authorities, the taxpayer has four weeks to prepare such documentation. This period can be extended to three months depending on the complexity of the intercompany transactions.
In which language should documentation be filed?
Transfer pricing documentation can be filed either in Dutch or in English at the Dutch tax authorities.
How long is it necessary to keep transfer pricing documentation?
Transfer pricing documentation should be kept for at least 7 years. In case of international transactions, it is recommended to keep documentation for 12 years.
Are intercompany agreements recommended?
It is recommended that taxpayers document their intercompany transactions through intercompany agreements.
Do you have to make disclosures about transfer pricing in the tax return? What statements or certifications are required?
Dutch corporate income taxpayers are need to specify annually in their annual tax returns whether they have been involved in related party
transactions. The specific transactions needs to be detailed in the corporate income tax return.
Which transfer pricing methods are acceptable?
Taxpayers are free to choose any OECD recognized transfer pricing method as long as the method results in an arm’s length pricing for the transaction. Taxpayers are not obliged to test all OECD recognized methods, though they must substantiate the method chosen.
Is there a priority among the acceptable methods?
There is no priority among the acceptable methods as long as the result is at arm’s length. The Dutch tax authorities prefer traditional transaction methods over transactional profit methods.
What is the statute of limitations on assessment of transfer pricing adjustments?
Transfer pricing adjustments can be assessed five years from the tax year-end plus any extensions provided by the Dutch tax authorities for filing tax returns. In certain (international) cases, this period can be extended to twelve years.
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What rates and conditions apply for transfer pricing penalties? And is there penalty relief?
Penalties apply not specifically for non-compliance with documentation requirements, but for an intentional act to manipulate transfer prices under the circumstance of an incorrect income tax return.
In case of a pure intentional act, the tax may be increased with a maximum of 100% of the tax due, plus interest. It is unlikely to have transfer
pricing/tax penalties if there is proper transfer pricing documentation in place.
Are advance pricing agreement (APA) options available?
Unilateral, bilateral and multilateral APAs are available. Pre-filing meetings can be organised with the Dutch tax authorities in order to discuss the case before a formal APA request is made.
Tax audit areas
Transfer pricing is a high risk area. Transfer pricing is a key issue in any tax audit. The Dutch tax authorities especially focus on the following areas:
loss making routine functions, IP transactions (transfer of IP, royalties), transactions with tax havens, transactions with permanent
establishments, head office activities, principal structures (including centralised functions and purchase offices), business reorganisations, captives and financial transactions.
Contact us
For further information on transfer pricing in the Netherlands please contact:
Michiel van den Berg T +31 (0) 182 53 19 22 E [email protected]
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Regulatory snapshot
Overview
When did transfer pricing rules start?
1996/7 Level of TP Established regime Return disclosure No
Documentation Not compulsory Methods
Best method approach Audit risk
Normal Penalties High
Advance Pricing Agreements (APAs) Available
• A comprehensive transfer pricing (TP) regime was introduced by legislation in 1995, with an effective date from the 1996/97 income year.
• The inland revenue subsequently released transfer pricing guidelines in October 2000, which cover the application of New Zealand’s TP rules and a general overview of the framework.
• Limited high level intercompany and cross border transaction disclosures are required by an entity as part of the annual income tax return completion.
• There is no statutory requirement for taxpayers to prepare transfer pricing documentation, however the burden of proof to demonstrate that consideration is consistent with the arm’s length principle is on the taxpayer. Penalties will apply if no documentation is prepared and a tax shortfall is determined.