The Transfer Pricing Law Review: Netherlands


On the basis of general principles of Dutch tax law (i.e., the 'total profit concept'), profits derived from a business are determined based on the arm's-length principle. Article 3.8 of the Dutch Income Tax Act 2001 (ITA), which equally applies to the Dutch Corporate Income Tax Act 1969; CITA), and Article 10 of the CITA allow the Dutch Revenue and Dutch tax courts to adjust taxable income reported by Dutch taxpayers to the extent that such income (or the lack thereof) is influenced by the relationship between a company and its shareholder.

As per 1 January 2002, the arm's-length principle, as laid down in Article 9 of the OECD Model Tax Convention (OMC), was codified in Article 8b of the CITA. Under Article 8b of the CITA, transfer pricing corrections can be made provided that an entity, directly or indirectly, participates in the management, supervision or capital of another corporate entity, or where the same person participates, directly or indirectly, in the management, supervision or capital of two corporate entities dealing with each other (i.e., 'related entities'). Article 8b of the CITA applies to transactions between companies, partnerships, trusts, among others. However, the article does not cover individuals.2 Furthermore, under Article 18 of the CITA, the guidance of Article 8b of the CITA equally applies to Dutch permanent establishment (PE).

According to the Parliamentary Papers,3 Article 8b of the CITA applies where the shareholder, supervisor or manager has sufficient authority to be able to influence the determination of transfer prices between the parties involved.4 In accordance with Article 9 of the OMC, the concept of 'related entities' has not been further defined or quantified for purposes of Article 8b of the CITA (to prevent the application of Article 8b of the CITA from being manipulated). Where the taxpayer has not presented or confirmed the existence of 'related entities', the tax inspector needs to demonstrate that parties are in fact related. In the first instance, the burden of proof rests with the Dutch Revenue.

The Dutch Revenue generally follows the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (Paris: OECD 2017) (the OECD Guidelines) as regards the application in practice of the arm's-length principle. The transfer pricing decree (the TP Decree)5 provides guidance on the position of the Dutch Revenue regarding the practical application of the arm's-length principle in Dutch tax law. In the TP Decree, the Dutch State Secretary of Financing (the State Secretary) states that the OECD Guidelines have direct effect in Dutch tax law and advocate a dynamic interpretation of Article 8b of the CITA. In the view of the State Secretary, such dynamic interpretation would mean that the arm's-length principle is applied in Dutch tax law in accordance with the latest version of the OECD Guidelines (i.e., most notably, taking into account the guidance on BEPS Actions 8-10 as included in the 2017 version of the OECD Guidelines).6

The view expressed by the State Secretary (on the dynamic interpretation of Article 8b of the CITA), however, is not in line with the status of the OECD Guidelines as expressed in the Parliamentary Papers as follows:

[F]or the purpose of the application of article 8b of the CITA, courts are expected to also take into account what has been agreed on in the OECD in this area. In this respect, the OECD Guidelines are comparable with the opinions of reputable authors and the conclusions of the attorney-general at the Supreme Court.

On the basis of the above, Visser and Van Kalmthout7 argued, contrary to the view expressed by the State Secretary in the TP Decree and the 2013 version of the TP Decree8 that the OECD Guidelines cannot be considered to have direct effect in Dutch tax law, and therefore that Article 8b of the CITA will need to be interpreted statically. On the basis of a 'static' interpretation of Article 8b of the CITA, Dutch courts dealing with non-arm's-length situations have generally corrected the price of a transaction at the time the transaction takes place. The courts thereby respected the legal transaction as a basis for the qualification for Dutch tax purposes; most notably, BNB 1992/69 (Patent Fees case),9 BNB 1985/301 (Curacao Captive case)10 and BNB 2010/93 (Curacao Patent case).11 Only in 'exceptional circumstances' have Dutch courts accepted, for Dutch tax purposes, an annual allocation of income to an entity other than the legal recipient of the income (i.e., as opposed to a one-time price correction at the time of the transaction). In these exceptional situations, the courts effectively ignored the legal entity as the recipient of the income for Dutch income tax purposes.12

Filing requirements

Effective on 1 January 2016, in addition to the pre-existing General Transfer Pricing Documentation requirements included in Article 8b, Paragraph 3 of the CITA (the General Requirements), (specific) Master File and Local File Transfer pricing Documentation requirements (the Specific Requirements) were introduced in Article 29g of the CITA. Dutch taxpayers do not need to file transfer pricing documentation with the Dutch Revenue under the General or Specific Requirements.

i General Requirements

Article 8b, Paragraph 3 of the CITA requires Dutch taxpayers engaged in transactions with 'related entities' to include information in their books and records:

  1. that shows in which manner the transfer prices have been established; and
  2. from which it can be deduced that the transfer prices applied would have been agreed between independent entities.

As regards the contents of the General Requirements, the Parliamentary Papers to the introduction of Article 8b of the CITA indicate that documentation should include a description of the characteristics of the goods and services, a functional analysis of the parties involved in the contractual terms of the transactions, the economic conditions and the business strategies. In addition, the taxpayer should be able to support its decision for the transfer pricing method applied based on the relevant facts. Notably, the General Requirements do not oblige taxpayers to perform a benchmarking analysis to substantiate the arm's-length nature of the transfer pricing. The information included under the General Requirements will be able to allow the Dutch Revenue to evaluate the prices applied by the taxpayer against relevant facts of third parties in comparable circumstances. Therefore, not having an available benchmarking analysis does not lead to the shift of the burden of proof to the taxpayer.

Although, in principle, the General Requirement has to be met at the moment the transaction is entered into, the Parliamentary Papers provide Dutch taxpayers a 'grace period' if they do not have the required documentation when requested by the Dutch Revenue. This grace period ranges between four weeks and three months depending on the complexity of the transaction. Furthermore, Article 8b of the CITA applies to both cross-border and domestic transactions (including, in principle, transactions between companies that form part of a Dutch fiscal unity pursuant to Article 15 of the CITA).

ii Specific Requirements

On the basis of Article 29g of the CITA, a Dutch taxpayer will need to include in his or her books and records a master file and a local file, provided that such taxpayer forms part of a multinational group of companies and that the multinational group reported (worldwide) consolidated revenue of at least €50 million in the preceding financial year. The Specific Requirements apply irrespective of whether the Dutch taxpayer was engaged in any inter-company transaction during the year under review. In principle, a Dutch holding company that only earns exempt income (i.e., under the participation exemption) will need to include the master file as well as the local file in its books and records.

The master file and local file will ultimately need to be included in the books and records of the Dutch taxpayer on the due date of the Dutch corporate income tax return. Where the taxpayer applies a financial year equal to the calendar year, the due date for the Dutch corporate income tax return is five months after the end of the relevant financial year (i.e., before 1 June 2022 for the financial year 2021). With a tax return filing extension, the Dutch corporate income tax will need to be filed within 16 months after the end of the relevant financial year (i.e., before 1 May 2022 for the financial year 2021). Although taxpayers are (legally) allowed to file the Dutch corporate income tax return before preparing the local file (or master file) and including them in their books and records, taxpayers are strongly recommended to apply the reverse order to ensure that the transfer pricing positions taken in the tax return are in line with, and substantiated in, the local file (i.e., if not, the taxpayers may bear the risk of being charged with intentionally filing an incorrect tax return). The information items to be included in the master file and local file, as specified in the Additional Transfer Pricing Documentation Regulation,13 are identical to the items listed in Annex I and II to Chapter V of the OECD Guidelines.

If a taxpayer does not (in time) include the local file and master file in his or her books and records, he or she will not meet Dutch administration requirements. As a result, the tax inspector is allowed to impose penalties and issue an 'information decision'. An 'irrevocable information decision' will shift the burden of proof to the taxpayer and will also increase such burden of proof (i.e., in contrast, not meeting General Requirements of Article 8b, Paragraph 3 of the CITA will only shift the burden of proof and not increase it). Where a taxpayer has not complied with tax filing requirements (i.e., filing a late or an incorrect tax return), a shift and increase of the burden of proof to the taxpayer does not require an irrevocable information decision. Because transfer pricing is not an exact science, i.e., transfer prices will generally be determined based on various subjective elements that are open to discussion with the Dutch Revenue (e.g., exit charges, compensation payments and profit splits), an increased burden of proof could have significant impact on transfer pricing corrections.

iii An overview of the main differences between General and Specific Requirements

ReferenceTransactions betweenDocumentation standardTimingBurden of proof (in principle) with
General Requirements (Article 8b of the CITA)Dutch and foreign related entities (including Dutch companies of a fiscal unity)OpenFY + 16 monthsDutch Revenue
Specific Requirements (Article 29g of the CITA)Foreign and Dutch related entities (including fiscal unity companies)Fixed (based on OECD template)Dutch Revenue Request + (maximum) 3 monthsTaxpayer (if fixed standard not met)

Country-by-country reporting

Country-by-country reporting (CbCR) requirements were introduced in 1 January 2016 in Article 29e of the CITA. In principle, a Dutch taxpayer will have CbC Reporting obligations if it forms part of a multinational group, which has reported consolidated (worldwide) group revenue of at least €750 million in the preceding financial year, and if no other group entity files the CbC Report. A CbC Report should be submitted within 12 months after the end of the financial year. The CbC notification should be filed by the last day of the financial year. Both the notification and the CBC Reports need to be filed digitally in a format described by the Dutch Revenue. Failure to meet the CbC Reporting obligations may result in a fine of €870,000 (i.e., for repeat offenders).

Presenting the case

i Pricing methods

In the TP Decree, the State Secretary indicates that, in line with Paragraph 4.9 of the OECD Guidelines, the Dutch Revenue will conduct a transfer pricing audit from the perspective of the method applied by the taxpayer at the time of the transaction. Consequently, Dutch taxpayers have a certain degree of freedom regarding their choice for any of the five transfer pricing methods described in the OECD Guidelines, provided that the method applied leads to arm's-length results for the specific transaction. In practice, the TNMM with total cost or turnover as net profit indicator as well as the CUP for financing transactions are most often applied in practice. However, as a result of increased scrutiny on one-sided transfer pricing methods by Dutch and other tax authorities, the (residual) Transactions Profit Split Method is increasingly applied in practice.

Commonly-used database providers in the Netherlands include Bloomberg, Bureau van Dijk, Thomson Reuters and Moody's. For benchmark analyses, the Dutch Revenue generally allow these analyses to be based on pan-European database information. This is due to the fact that the limited size of the economy in the Netherlands prevents the availability of sufficient unrelated-party transactions. In practice, the Dutch Revenue may require taxpayers to account for incremental risk on certain transactions due to the location of the beneficiary through the use of, for example, country risk premiums. Furthermore, with the inclusion of example calculations thereof in the OECD Guidelines, the Dutch Revenue is more likely to accept comparability adjustments, such as working capital adjustments.

Notably, however, Dutch Revenue 'critically assesses' royalty benchmarks used to substantiate arm's-length charges for intra-group licensing arrangements (reference is made to Section 5.5 of the TP Decree in which the State Secretary indicates this view). In our practical experience, Dutch Revenue are specifically critical of databases used to determine royalties brand or trademark remunerations, or both, in business-to-business situations where such charges reduce the Dutch taxable basis. In the view of the Dutch Revenue, such benchmarks cannot be used because they are of the opinion that the information included in these databases is not sufficiently detailed to conduct an appropriate comparability analysis in a suitable manner.

An arm's-length compensation must, in principle, be determined on a transactional basis according to the OECD Guidelines. In practice, complications connected to this determination of prices on a transactional basis may occur. In the situation that an assessment per transaction is not possible, for instance when large numbers of similar transactions are involved, the transaction can be assessed on an aggregated basis to determine the arm's-length character. In these circumstances, the taxpayer is obliged to substantiate that the transfer price taken into account with regards to the aggregated transaction as a whole is in accordance with the arm's-length principle (reference is made to Section 2.2 of the TP Decree as well as to the Dutch car-importer case law of the Dutch Supreme Court).14

In the TP Decree, the State Secretary indicates that statistical tools, such as the interquartile range, can be applied to increase the reliability of the comparable data. He takes the position that a correction cannot take place if the price applied for the inter-company transaction is within this range. In addition, a taxpayer-initiated shift within the range will only be accepted by the Dutch Revenue where the taxpayer:

  1. has substantiated the changed circumstances justifying an adjustment of the transfer price; and
  2. formalised the amended pricing in an agreement and actually charged said price between the parties.

If the price applied falls outside of this range, the State Secretary takes the position that the transfer prices should be adjusted to the median (i.e., the middle point of a range of observations). Moreover, in respect to the use of multi-year data, the State Secretary takes the following position in respect to transfer pricing adjustments initiated by the Dutch Revenue:

  1. the Dutch Revenue will first have to assess whether the remuneration for the inter-company transaction falls within the arm's-length range determined for the year in question. No adjustment will be made if the remuneration falls within the annual range;
  2. if the remuneration falls outside the annual range, the Dutch Revenue will need to assess whether a moving average remuneration for the inter-company transaction, determined over a number of years, falls within the multiple-year range. If so, no adjustment will be made; and
  3. an adjustment will be made if the remuneration falls outside of both the arm's-length annual range and the multiple-year range.

ii Authority scrutiny and evidence gathering

The Coordination Group Transfer Pricing (CGTP) was established to ensure the coordination within the Dutch Revenue on the practical application of transfer pricing rules and the coordination of knowledge. Although the local tax inspectors are in charge of the assessment of the taxpayer's return, they are supported by the CGTP in transfer pricing matters. The CGTP also supports the Ministry of Finance in relation to transfer pricing policy and MAPs.

The Dutch Revenue mainly focuses on the topics included in the TP Decree, such as business restructuring (specifically involving transfers of part of the business out of the Netherlands), (the transfer and pricing of) intangibles, intra-group services, procurement activities, intra-group guarantees, captive insurance companies and Dutch participants in CCAs. Dutch Revenue also focuses on the transfer pricing position of group companies that incur continuous loss. In these discussions, particular attention is given by the Dutch Revenue to assess whether the relevant inter-company transaction is commercially rational from the perspective of the Dutch taxpayer as well as the related entity. A more recent trend is the focus of the Dutch Revenue on the arm's-length nature of valuations prepared by Dutch tax payers (i.e., reference is also made to Paragraph 5 of the TP Decree). This has led to the formation of the National Business Valuation team (NBVT) of the Dutch Revenue. The NBVT include registered business valuation specialists and can be contacted for tax related valuation discussions. Additionally, it has become common practice for members of the NBVT to review tax rulings that have a substantial valuation aspect. When it comes to obtaining a tax ruling for these cases, taxpayers should be prepared to have a thorough valuation report in place to substantiate their tax position (e.g., for obtaining a tax ruling in relation to the Management Participation Plan). Furthermore, where possible, the NBVT prefers the application of the Discounted Cash Flow (DCF) method instead of merely using a multiple valuation. When applying the DCF method, the taxpayer should provide explicit substantiation on how it has determined the discount rate and the respective free cashflows. For structures that have a valuation aspect but for which no tax ruling is obtained, it is equally important for a taxpayer to have a thorough valuation report available in his or her books and records.

Upon the introduction of the Specific Requirements, the State Secretary indicated that master file and local file documentation could be requested by the Dutch Revenue following a risk assessment of the CbC Report. However, recent experience shows that the Dutch Revenue have requested master file and local file documentation in relation to the assessment of the tax return or even as more of a general request. The Dutch Revenue have also been requesting master file and local file documentation from Dutch taxpayers in the scope of an internal documentation review pilot programme.

A Dutch taxpayer is required to provide the Dutch Revenue with all information that could (hypothetically) be reasonably relevant for the levying of Dutch taxes on the taxpayer. The Dutch Revenue may also ask information on the relevant taxpayer from third parties that are required to maintain an administration under Dutch tax law (e.g., Dutch companies). Dutch taxpayers are not, however, required to provide the Dutch Revenue with (1) advice received by the taxpayer from a tax advisor or accountant and (2) correspondence between the taxpayer and his or her attorney (in their function as an attorney).

Intangible assets

There is no definition of intangibles in the Dutch law. As a general rule, the Dutch tax law respects the content of the legal arrangements that exist between parties. In principle, the owner of an intangible is therefore the legal owner of the intangible asset. The State Secretary, however, deems it reasonable to attribute no more than a limited remuneration to the legal owner of the intangible under certain circumstances.15 The State Secretary also finds that a transaction is not in accordance with the arm's-length principle if the intangible is transferred to a group company that does not add value to the relevant assets because it lacks the requested functionality. This seems to be in conformity with the OECD Guidelines. According to the OECD Guidelines, an assessment of the possible DEMPE functions associated with the intangible must be carried out to determine which group entity is entitled to the share in the returns derived by the group from exploiting intangibles.16 The functions relate to the Development, Enhancement, Maintenance, Protection and Exploitation of the intangible.

The State Secretary considers the functions of Development and Enhancement to be the most important in this analysis.17 The Dutch Revenue has a specific approach when hard-to-value intangibles18 are involved because the value of the intangible is difficult to assess, due to uncertainty of the future development of the intangible. When there is a discrepancy of more than 20 per cent between the actual results and the projections that cannot be explained under the facts and circumstances occurring after the date of the price determination, the Dutch Revenue will challenge the arm's-length nature of the price.19 The intangible will not be regarded as 'hard-to-value' if the deviation occurs after a period of five years after the commercialisation of the intangible on the market.


Historically, Dutch taxpayers have often settled disputes on transfer pricing with the Dutch Revenue. Such a settlement may be reached before the audit is finalised (i.e., before the final audit report is issued), but settlements may also be reached during the objection and appeal phase. There is no (fixed) formal procedure for Dutch taxpayers willing to reach a settlement with the Dutch Revenue. A settlement will, in any case, need to be formalised in a 'determination agreement'. Generally, a determination agreement concluded with the Dutch Revenue to formalise a settlement will cover past years (i.e., the years under audit). However, Dutch taxpayers may also rely on the determination agreement for future years provided that such is explicitly included in that agreement. Dutch taxpayers also have the possibility to obtain confirmation in advance (with respect to future years) in the form of a (unilateral, bilateral and multilateral) Advanced Pricing Agreement (APA). These APAs may also cover an open position in previous years as a result of a rollback mechanism. APAs and other rulings issued after 1 July 2019 are subject to the new ruling practice included in the Ruling Decree.20 Some notable changes, vis-à-vis the prior ruling practice, are as follows:

  1. the exchange of cross-border rulings and APAs;
  2. publication of anonymised summaries; and
  3. the economic nexus requirements.

With economic nexus requirements, the State Secretary intends to safeguard that the Dutch taxpayer actually performs (i.e., for its own risk and account) relevant operational activities in the Netherlands and that these activities are in line with the function of the taxpayer within the group. Furthermore, under the new policy, rulings and APAs are no longer issued if Dutch or international tax advantages are considered the main purpose of the transaction under review. Consequently, rulings and APAs that provide confirmation in advance on deemed capital contributions to a Dutch taxpayer were no longer be issued by the Dutch Revenue after 1 July 2019. Furthermore rulings and APAs will be denied for transactions involving entities established in countries:

  1. listed on the EU list of non-cooperative jurisdictions for tax purposes; or
  2. qualified as low-tax jurisdictions (i.e., with a profit or statutory tax rate of less than 9 per cent).21

To date, transfer pricing disputes have hardly ever been brought to court because, generally, the outcome of such proceedings is highly uncertain (i.e., taxpayers generally tend to avoid a remote risk that high corrections will be imposed). Furthermore, taxpayers generally prefer to settle transfer pricing disputes because this allows them to restrict the dispute to the transaction (or transactions) under review. If brought in front of a court, the judgment of such court may, apart from the transaction under review, also have adverse consequences for the transfer pricing system applied by the group to which the Dutch taxpayer forms a part. Currently, this trend seems to be the reverse; that is, with Dutch taxpayers showing an increased willingness to litigate due to a generally less flexible attitude of Dutch Revenue. In view of the Dutch Revenue's inflexible attitude, when engaged in discussions with the Dutch Revenue, Dutch taxpayers may decide to adopt a litigation strategy in which the taxpayer in his or her communication to the Dutch Revenue indicates an increased willingness to litigate (even though in the end that route may not be pursued).


The corporate income tax return must be filed within five months after the end of the financial year. The taxpayer may apply for a filing extension for the filing of the return, which would mean that the tax return has to be filed 16 months after the end of the relevant financial year. After the filing of the tax return, the Dutch Revenue can initiate the audit process, which often includes a transfer pricing review. The final assessment needs to be raised within three years of the tax return (including the extension period of applicable).

After a final assessment has been issued, the Dutch Revenue may under certain conditions issue an additional assessment. In general, an additional assessment can only be issued within a period of five years (to be prolonged with the above-mentioned extension period) after the end of the relevant financial year if new information – a 'new fact' –, has come to light of which the Dutch Revenue was not aware (and could not reasonably have been aware) at the time that the original final assessment was issued. The five-year period may be extended to 12 years if the company paid insufficient tax in respect of an asset held, or profit that arose, abroad. The Dutch Revenue does not need to prove that a new fact has come to light, in the event the company has not acted in good faith and knows, or should have known, that the original final assessment was too low or that, erroneously, no assessment was issued at all.

The Dutch Revenue may also issue an additional assessment if (1) the final assessment was issued incorrectly due to an error (or a final assessment was not issued due to an error) and (2) the taxpayer was aware or reasonably should have been aware that the assessment was incorrect. If the amount of tax due on the assessment is at least 30 per cent lower than the amount due based on tax law, the taxpayer is deemed to be aware that it is incorrect.

If the taxpayer does not agree with the final or additional assessment he or she can file an administrative appeal against said assessment within six weeks of the date of tax assessment. The taxpayer can only start litigation in court after an administrative appeal has been made.


i Procedure

The Dutch Revenue bears a 'double' burden of proof when it challenges the transfer pricing position of a taxpayer.22 According to the Supreme Court, the Dutch Revenue will have to (1) prove that the inter-company transaction took place because of shareholder motives, rather than business motives and, on top of that, (2) will have to argue the non-arm's-length character of the transfer prices applied.

When transfer pricing corrections are involved, the Zinc case provides more insight regarding the division of the burden of proof.23 In this case the court confirmed that the tax inspector has a double burden of proof. The court also indicated that the tax inspector will, in principle, not be able to argue a shift of the burden of proof to the taxpayer (if the taxpayer had filed a correct tax return). The Zinc case also seems to imply that the Dutch Revenue cannot prove that a transaction was not based on business motives (the first part of the burden of proof), where proper transfer pricing documentation was prepared, because this proves that the taxpayer intended to apply arm's-length pricing. Although an appeal was lodged against the decision of the lower court, the case was settled by the taxpayer and the Dutch Revenue before the High Court.

ii Recent cases

ECLI:NL:RBZWB:2017:5965 (9 September 2020)

The Zinc case is described above.

ECLI:NL:HR:2019:355 (15 March 2019)

In this case, the Dutch entity 'C' had an outstanding receivable on the non-related entity 'E'. Because it seemed that E would not be able to pay C, C booked a loss provision for this receivable against its taxable income. Years later, 'D', a related entity to C, acquired all shares in E and issued a guarantee for all obligations of E. Subsequently, C released its provision, which had already been accepted in the assessment. This profit was considered by the taxpayer as a deemed capital contribution, rather than taxable income, because D was a related entity. The Supreme Court decided that it was not required that the guarantee be specifically directed towards C to create a transaction between related entities. The case was referred to the High Court, which decided that the guarantee was partly given because of commercial reasons and partly for shareholder reasons. This decision was appealed before the Supreme Court, which held that the High Court had failed to require the taxpayer to render proof that an deemed capital contribution had taken place. The Supreme Court indicated that it must be ascertained whether D would have issued a guarantee if C and D had not belonged to the same group. Ultimately, if D would not have issued a guarantee in the case that an independent party would have been involved, the benefit as a result of the guarantee would (entirely) be a deemed capital contribution. The case was referred back to a different High Court for further analysis of the facts based on the guidance provided by the Supreme Court.

Secondary adjustment and penalties

Under Dutch tax law, upward or downward primary adjustments require the recognition in the tax books of the company of secondary transactions (i.e., deemed distributions to the shareholder, informal capital contributions to the company or deemed loan between the company and the related entity). This has been confirmed by the State Secretary in the TP Decree. In turn, these secondary transactions may themselves trigger secondary adjustments (e.g., the recognition of Dutch dividend withholding tax on deemed dividend distributions or the imputation of arm's-length interest on a deemed loan).

Where benefits are provided by one sister company to the other, such benefits will be treated as a deemed dividend distribution to the common shareholder followed by a deemed capital contribution to the benefiting company. In its judgement dated 31 May 1978, the Dutch Supreme Court ruled that the benefit obtained by a Dutch company, resulting from an interest-free loan payable granted by its Swedish (indirect) shareholder, did not constitute business profit for the Dutch company but instead a deemed capital contribution to its capital by the Swedish shareholder.24 The downward adjustment was made irrespective of a pick-up of deemed interest income at the level of the Swedish shareholder. In March 2021, the Dutch government published an online consultation for a newly proposed Article 8ba of the CITA. This (proposed) article aims to prevent downward adjustments in certain (alleged abusive) situations. This expected law is further discussed in the 'Outlook' section below.

In the Parliamentary Papers, the State Secretary indicated that due to the complexity of transfer pricing, penalties will only be imposed when it is plausible that clearly intentional actions have resulted in a non-arm's-length transfer pricing position taken in the tax return. No penalties would be imposed in the case of gross negligence and conditional intent. However, the Dutch Revenue seems to have abandoned this lenient practice and are increasingly imposing penalties in transfer pricing cases.25

Broader taxation issues

i Diverted profits tax, digital sales taxes and other supplementary measures

The Netherlands does not provide for a diverted profit tax, digital sales tax or other tax measures supplementing transfer pricing rules. Changes in this regard may be expected in the coming years because the European Commission seems willing to introduce a digital levy tax in the EU.

Regarding EU State Aid case law, on 24 September 2019, the General Court of the EU annulled the Commission's decision in the Starbucks case.26 The Commission was of the opinion that the agreed remuneration by the Netherlands and Starbucks was not in accordance with the arm's-length principle. The Commission found that the Netherlands had therefore granted State Aid to Starbucks in the form of an unfair tax advantage. However, the Commission did not manage to demonstrate the existence of an economic advantage within the meaning of Article 107 of the Treaty on the Functioning of the European Union.

ii Tax challenges arising from digitalisation

The Dutch government has expressed its intention to participate in preventing international tax avoidance and also recognises that international agreements are key in preventing the income diversion to other countries.27 The support for the Inclusive Framework recommendations is provided in the following statement:

…the Netherlands supports initiatives aimed at creating an international coordinated approach in order to tackle remaining ways of avoiding taxation. The Netherlands is hopeful that with the Pillar One and Two plank as consulted by the OESO, we can reach consensus on a solution with a large group of countries by the end of 2020.

iii Transfer pricing implications of covid-19

The covid-19 pandemic and the government measures to curb its spread has had, and continues to have, an unprecedented (negative) impact on the global economy. Practice shows that, in response to the adverse consequences of the pandemic, independent third parties:

  1. amend certain terms and conditions of contracts;
  2. reach agreement to (temporarily) postpone terms of contracts; or
  3. unilaterally terminate existing contacts.

Terms of contracts are even overruled in Dutch (civil) court rulings.

In response to the consequence of the covid-19 pandemic on the transfer pricing policies applied by related entities, on 18 December 2020, the OECD released guidance (the Guidance) on the transfer pricing implications of the pandemic. The Guidance focuses on how the arm's-length principle and OECD Guidelines apply to issues that may arise due to the pandemic. The Guidance states that the pandemic may impact pricing between independent enterprises and that the economic relevant characteristics should be taken into account. An adjustment could be made in accordance with the arm's-length principle, as long as an independent party would have renegotiated these terms in their existing agreements.

In line with the behaviour of independent third parties, related entities consider and actually engage in (temporarily) amending the transfer prices between them (i.e., often this involves the remuneration of related entities performing routine activities and earning cost-plus types of remunerations). On the basis of the options realistically available (including hypothetical bargaining powers) of the parties involved, parties may agree at arm's length to accept the following (temporarily) amended transfer prices between an entrepreneur and a routine group entity:

  1. a reduction of the markup earned by the routine entity;
  2. a compensation at cost for the routine entity (i.e., 0 per cent markup); or
  3. a limitation on charge of the routine entity's fixed costs.

In response to the covid-19 pandemic, the Dutch government introduced a temporary emergency employment measure (the NOW). The NOW provides Dutch employers with a grant to allow them to continue to finance the wages of Dutch employees. Dutch employers who suffer from a loss of turnover due to covid-19 of at least 20 per cent can apply for this grant. In principle, the turnover reduction is determined on a 'group' basis, but an exemption exists, subject to requirements, for group companies that pay Dutch wages. These companies are allowed to determine the turnover reduction on a standalone basis. However, as one of the requirements for the standalone approach (i.e., in later versions of the NOW, this condition is no longer limited to the standalone approach), the group company needs to maintain the same 'transfer prices' as applied in its previous (2019) consolidated financial statements. Even if a transfer pricing adjustment can be substantiated based on the arm's-length principle, an extensive interpretation of the 'same TP policy requirement' of the NOW may lead to the conclusion that due to an amendment of the TP policy, the grant will need to be repaid. That conclusion may arguably be in conflict with the principle of equality applicable in Dutch administrative law. Ultimately, an (extensive) interpretation of the 'same TP policy requirement' would result in similar cases being treated completely differently, whereby the different treatment actually arises by chance (i.e., whether or not the company requesting the grant forms part of a group of companies).

iv Double taxation

All bilateral tax treaties (Tax Treaties) concluded by the Netherlands contain a mutual agreement provision similar to Article 25, Paragraph 1 of the OECD Model Convention. In addition, as part of its Tax Treaty policy, the Netherlands also intends to include mandatory binding arbitration (MBA) clauses, in line with Article 25, Paragraph 5 of the OECD Model Convention, in the Tax Treaties that it concludes with other jurisdictions. Unfortunately, not all Tax Treaty partners have been willing to include such a provision. Domestic statutory provisions regarding MAP and MBA are included in the Law on Fiscal Arbitrage (WFA), which constitutes the implementation of EU Dispute Resolution Directive in Dutch law. The practical application of MAPs and (mandatory binding) arbitration under the WFA, the EU Arbitrage Convention (the Convention) and Tax Treaties are included in the (updated) MAP Decree.28

The MAP Decree was published mainly because of the implementation of the EU Dispute Resolution Directive in the WFA. Other reasons for the update of the MAP Decree were the introduction of the OECD BEPS Action 14 'minimum standard' and the entering into force of the Multilateral Instrument (the MLI). The main differences of the MAP Decree vis-à-vis the 2008 MAP Decree are included below:

  1. the MAP Decree now contains the procedure for filing MAP requests based on the WFA;
  2. the MAP Decree includes specific approval, subject to conditions, for the Dutch Revenue to apply corresponding (downward) adjustments after the five-year term for ex-officio adjustments has lapsed, in situations where a MAP was terminated further to a court ruling in (foreign) domestic legal proceedings (i.e., in the previous MAP Decree, the five-year term for ex-officio adjustments was only waived in respect to the implantation of a MAP resolution);
  3. subject to conditions, the five-year term for ex-officio adjustments is also waived in situations where the Dutch Revenue agrees with the foreign correction (i.e. no need to enter into a MAP with the sole intention of meeting the Dutch formal requirements which respect to the implementation of the resolution);
  4. Dutch taxpayers are explicitly allowed to file a MAP request after reaching a compromise with the Dutch Revenue. However, in such a case, the Dutch CA will not be bound by the settlement agreement concluded by the Dutch Revenue and the taxpayer;
  5. the MAP Decree contains guidance on the practical application of Multilateral MAP and for taxation and collection interest in MAP situations; and
  6. the MAP Decree specifically indicates that Dutch taxpayers may object and appeal against a denial of the Dutch Revenue to accept a request for MAP outside the scope of the WFA.29

v Consequential impact for other taxes

Transfer pricing adjustments are primarily of importance in the context of the Dutch (corporate) income tax. However, a transfer pricing adjustment can also have consequences for the VAT and for customs purposes. A transfer pricing adjustment may affect the pricing of the products and impact the customs value of the imported goods. Consequently, an adjustment required by the Dutch Revenue may have an impact on the tax levied. When a transfer price adjustment does not relate to an individual transaction, it is unlikely to have consequences for other taxes. These implications should be carefully analysed on an individual basis.

When demonstrating the arm's-length value for customs purposes, it is customary to share transfer pricing reports in which it is established that the transaction value has not been influenced by a related entity.

Outlook and conclusions

As part of an internet consultation, the Dutch legislator published a draft bill of law as well as explanatory memorandum on 2 March 2021. The proposed Article 8ba of the CITA intends to prevent Dutch unilateral downward adjustments to the extent that the corresponding pick-up is not included in the taxable basis of the other related entity. The proposal also contains rules that prevent the amortisation for tax purposes of (intangible) business assets for which a step-up in basis was claimed. Under the proposal these rules are intended to enter into force on 1 January 2022. The amortisation restriction is intended to have retroactive effect to 1 January 2017.

In addition to the above, it should be noted that the Netherlands implemented the mandatory disclosure rules for intermediaries and taxpayers, as recommended by BEPS Action 12 and imposed by Council Directive 2018/822/EU, of 25 May 2018 (Mandatory Disclosure Directive). The Mandatory Disclosure Directive entails the obligation for intermediaries and taxpayers (as applicable) to disclose (under a reporting mechanism) to the relevant tax authorities within the European Union (EU) information on certain arrangements that have tax relevance and indicate a potential risk of tax evasion. Arrangements that meet certain characteristics, or hallmarks, should be reported to the Dutch Revenue, and the Dutch Revenue will exchange the reported arrangements with the other involved EU Member States. According to the hallmark regarding arrangements involving transfer pricing methods (Category E), the following arrangements should be disclosed:

  1. an arrangement that involves the use of unilateral safe-harbour rules;
  2. an arrangement involving the transfer of hard-to-value intangibles; and
  3. an arrangement involving an intra-group cross-border transfer of functions or risks (or both) and/or assets, if the projected annual earnings before interest and taxes (EBIT), during the three-year period after the transfer, of the transferor or transferors, are less than 50 per cent of the projected annual EBIT of such transferor or transferors if the transfer had not been made.


1 Taco Wiertsema is counsel and Anne Verhagen is an associate at Atlas Tax Lawyers.

2 On the basis of the arm's-length principle, (business) income earned by individuals in transactions with (foreign)-related entities can also be adjusted. Reference is made to the ruling of the Supreme Court dated 25 November 2011, ECLI:NL:HR:2011:BP8952, which deals with a non-arm's-length loan.

3 Parliamentary Papers II 2001/02, 28 034, nr. 5, pp. 47–48.

4 Parliamentary Papers II 2001/02, 28 034, No. 3, pp. 7–8 and 19–23.

5 Decree of the State Secretary of Finance, dated 22 April 2018, No. 2018-6865.

6 In Paragraph 7 of the TP Decree, in Example O, the dynamic interpretation of Article 8b of the CITA is illustrated as follows:

[…] In addition, I would like to point out that if and in so far as B provides financing to A and does not exercise any control over the risks relating to this financing, B can at most be entitled to a risk-free return (see Paragraph 1.103 of the OECD Guidelines).
The difference between (1) the income legally earned by B and (2) the risk-free return is attributed for tax purposes under this approach to the entity that does perform the relevant functions.

7 See E.A. Visser, Verrekenprijzen; een drieluik p. 26 (Kluwer 2005); and L.F. van Kalmthout, Verrekenprijzen, in Over de grenzen van de vennootschapsbelasting: Opstellen aangeboden aan prof. Mr. D. Juch ter gelegenheid van zijn afscheid als hoogleraar aan de Universiteit van Tilburg p. 99 (Kluwer 2002).

8 Decree of the State Secretary of Finance, dated 26 November 2013, IFZ 2013/184M.

9 Decision dated 22 December 1991 of the Supreme Court nr. ECLI:NL:HR:1991:ZC4822.

10 Decision dated 21 August 1985 of the Supreme Court nr. ECLI:NL:HR:1969:BM0726.

11 Decision dated 25 June 1969 of the Supreme Court nr. ECLI:NL:HR:1969:BM0726.

12 In the Project Development case (17 August 1998, nr 32 997, BNB 1998/385), 'exceptional circumstances' were recognised, which led to an 'allocation of income' approach, rather than a price correction at the time of the transaction. In his note to this case, Ch.J. Langereis mentions in general terms that an 'allocation of income' approach would be justified if an arm's-length price cannot be established even by an independent specialist. See also the Paper Trader case (6 October 2011, nr. 11/00762, BNB 2013/77), where 'exceptional circumstances' were recognised due to the fact that the sole reason for the change in the legal structure was found to be the shareholder's relationship between the taxpayer and the legal recipient of the income.

13 Regulation of the State Secretary of Finance dated 30 December 2015, nr. DB2015/462M.

14 Decision dated 28 June 2002 of the Supreme Court nr. ECLI:NL:HR:2002:AE4718.

15 Decree of the Dutch State Secretary of Finance dated 22 April 2018, nr. 2018-6865, Paragraph 5.7.

16 OECD Guidelines, Paragraph 6.32.

17 Decree of the Dutch State Secretary of Finance dated 22 April 2018, nr. 2018-6865, Paragraph 5.1.

18 Reference is made to the OECD Guidelines, Paragraph 6.189.

19 Decree of the Dutch State Secretary of Finance dated 22 April 2018, nr. 2018-6865, Paragraph 5.3.

20 Decree of the Dutch State Secretary of Finance dated 19 June 2019, nr. 2019/12002.

21 Decree of the Dutch State Secretary of Finance dated 19 June 2019, nr. 2019/12002, Paragraph 3.

22 Decision of the Dutch Supreme Court, dated 28 June 2002, ECLI:NL:HR:2002:AE4718.

23 Decision of the Dutch Supreme Court, dated 28 June 2002, ECLI:NL:HR:2002:AE4718 and Decision of the Zeeland-West-Brabant Lower Court dated 9 September 2017, ECLI:NL:RBZWB:2017:5965.

24 Decision of the Dutch Supreme Court dated 31 May 1978, nr. ECLI:NL:PHR:1978:AX2866.

25 Decision dated 17 January 2014 of the Zeeland-West-Brabant Lower Court, nr. ECLI:NL:RBZWB:2014:150.

26 Decision of the General Court of the European Union, dated 24 September 2019, ECLI:EU:T:2019:669.

28 Decree of the State Secretary of Finance dated 11 June 2020, nr. 2020-0000101607. This decree is an update of the former MAP Decree dated 29 September 2008, nr. IFZ2008/248M.

29 The MAP Decree substantiates the possibility of objection and appeal based on a decision of the lower court of Amsterdam dated 25 July 2017, nr. ECLI:NL:RBAMS:2017:9099. This possibility has recently been confirmed by decisions of the highest Dutch administrative court dated 3 February 2021 nr. ECLI:NL:RVS:2021:205 and ECLI:NL:RVS:2021:206.

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