New Dutch Transfer Pricing Decree | Deloitte Nederland

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New Dutch Transfer Pricing Decree

The new Dutch Transfer Pricing Decree provides valuable insights into the Dutch Tax Authorities’ position on the interpretation and application of the arm’s length principle.

24 May 2018

The 2018 Dutch TP Decree provides additional background and guidance on the domestic interpretation of the OECD TP Guidelines, adopting recent updates resulting from the OECD BEPS project. This new TP Decree replaces the Transfer Pricing Decree of 14 November 2013. Most notably, the Decree provides additional guidance regarding the application of the arm’s length principle aligning with the updated 2017 OECD Guidelines, provides examples on determining the appropriate cost base, adopts the OECD simplified approach for low-value added services, and provides additional guidance and views regarding (intangible) assets and business restructurings.

Application of the arm’s length principle

The Decree confirms the detailed risk analysis as introduced in the recent update to the OECD guidelines. Though the contractual relations entered into are the starting point, the Decree emphasizes that the actual conduct will be considered leading in situations where it is not in line with the contractual arrangement made.

According to the Dutch authorities, it seems not to be at arm’s length when all risks are contractually assigned to one party that performs a minimal contribution to the risk control function. Therefore, the profit split method could be an appropriate TP method to apply in case multiple parties contribute to the control of economically significant risks.

Cost base

The functions performed, assets used and risks assumed by the tested party constitute the basis for determining an appropriate cost base when using the TNMM with a cost based profit level indicator. As a specific example, the operating costs excluding the raw materials could be considered an appropriate cost base for a manufacturing entity which does not run risks in relation to the raw materials based on its functional profile.

Low-value adding services

The Decree aligns with the OECD Guidelines and allows a simplified approach for the determination of the arm’s length remuneration for low-value adding services, by applying a mark-up of 5% on costs. The application of the simplified approach assumes that appropriate allocation keys are used and substantiation in the form of documentation is prepared. As in the previous Decree, the Dutch authorities will under certain conditions (7.37 and 7.43 - 7.65 OECD guidelines) allow a recharge of the relevant costs without a mark-up.

(Intangible) assets and business restructuring

In order to determine the remuneration for the use of intangible assets, using databases with comparable transactions will be critically reviewed. Instead, a residual profit approach could be more appropriate to determine the value for the use of intangible assets, assuming all other relevant functions, risks and assets are appropriately remunerated.

Transfers of (intangible) assets can only be considered to take place under arm’s length conditions when these assets are expected to increase the combined profit of the parties involved, requiring certain functionality of the (intangible) assets’ buyer. The Decree indicates that a transfer of (intangible) assets to a party that does not have the required functionality to contribute value to those (intangible) assets will be ignored for tax purposes. For hard to value intangibles, the tax administration may use actual results to challenge the original intangible assets’ transfer value in case of a substantial deviation (in principle >20%, in the first five years of commercialization) of the projected results used in the valuation of intangible assets (no reference to value deviation as used in the OECD Guidelines). 

In addition, the Decree expresses the view of the Dutch authorities regarding the specific considerations in relation to a business restructuring following the purchase of shares in an unrelated entity. The acquisition file is considered an essential component of the TP documentation in relation to the business restructuring. Other attention points include the relevance of the relation between purchase price and value of the intangible assets for the acquirer of the shares, tax on capital gains upon transfer and the limited time horizon when valuing routine functions.

Other remarks

Other than the main differences to the 2013 TP Decree as described above, the 2018 TP Decree continues to address certain other specific situations. This includes cost contribution arrangements, central procurement, guarantees in case of loan agreements, internal reinsurance activities, loans and considerations to subsidies.

As a final remark, the Decree more explicitly indicates that in case of non-arm’s length transfer of profits, the Dutch authorities may impose penalties depending on the facts and circumstances of the specific case.


Source: Decree of 22 April 2018, no. 2018-6865.

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