Transfer Pricing and compliance obligations


With respect to your Transfer Pricing compliance obligations, various issues can be recognised, e.g. which formal requirements apply to your specific situation, how you should deal with IP and, more specifically, hard-to-value IP. However, once the formal compliance requirements are met, this does not guarantee a smooth discussion with tax authorities in all jurisdictions involved. To obtain certainty on your tax positions, an Advanced Pricing Agreement may be preferable Furthermore, as tax authorities may disagree on positions you have adopted even with your Transfer Pricing documentation in place, you could still incur double taxation requiring correction through a Mutual Agreement Procedure. All the above items are discussed in detail below.

Documentation requirements

As of 2016, the Dutch Corporate Income Tax Act (CITA) clearly states the obligations regarding the need to prepare Transfer Pricing documentation for any taxpayer who is a member of a multinational group. The table below provides an overview of the requirements and the period within which the documentation must be included in the administration of the taxpayer.

Category I Category II Category III
Consolidated group revenue
< € 50 million
Consolidated group revenue
≥ € 50 million < € 750 million
Consolidated group revenue
≥ € 750 million
  • Free-form documentation
  • Continuation of existing policy (article 8b of the Dutch CITA)
  • Master File
  • Local File
  • Master File
  • Local File
  • Country-by-Country (CbC) report
Must be available upon request within a reasonable period (i.e. 4 weeks to 3 months). Must be included in the administration of the taxpayer by the latest tax return due date, which date may differ depending on whether an extension for filing has been granted. As Category II, however, the CbC report must be submitted at the latest 12 months after the financial year ends, with a notification being made before the end of the financial year.

Please note that if your administration does not include the correctly processed (legally) required documentation, you may be incur adverse tax consequences ranging from fines between € 8,300 and € 830,000 to a prison sentence of up to 4 years.

Special attention regarding intangibles, in general

Intangibles are becoming more and more key in terms of value creation by multinational enterprises. So, it is fundamental to have a correct transfer pricing policy of intangibles in place.

Once the intangibles are identified, for a correct allocation of their revenues it is important that their functions be allocated correctly. In this respect, the OECD has recognised the following so-called DEMPE functions:

  • Development
  • Enhancement
  • Maintenance
  • Protection
  • Exploitation

Insights on how to allocate the profits attributable to intangibles can be obtained through a DEMPE analysis. Being the legal owner of an intangible may still not allocate most of the profits attributable to it to you. Please note that the DEMPE analysis should be included in your transfer pricing documentation.

Hard-to-value intangibles, specifically

More frequently between associated enterprises than between independent parties, intangibles that are not fully developed are transferred from one entity to another. The fact that those intangibles are not fully developed and in many cases are indeed unique makes it very hard to properly determine their value at the time of transfer.

In this respect, the OECD has implemented the so-called hard-to-value intangible approach. This approach allows tax authorities to consider the ex post results of the use of an intangible as presumptive evidence to determine the arm’s length nature of its ex ante value. If there is a significant difference between the ex post calculations and the ex ante value of the intangible asset although this difference cannot be attributed to unforeseen, extraordinary events, tax authorities may correct its ex ante value.

Taxpayers can also use this approach to correctly determine – and, if indicated, adjust – the price paid for the transfer of not fully developed intangibles.

Advanced Pricing Agreements

Having advance certainty that transfer pricing policies being applied are indeed acceptable is very important to multinational enterprises. A key to achieving this certainty is the Advanced Pricing Agreement (APA). An APA is an agreement between a taxpayer and one or more tax authorities that determines the transfer pricing policy regarding the taxpayer’s future intercompany transactions, most commonly those of the next 4-5 years. The APA remains valid if legislation does not change and/or taxpayer conditions underlying the APA remain the same.

Mutual Agreement Procedures

Although the Dutch Transfer Pricing regime is pragmatic, a transfer pricing adjustment or another cross-border conflict may result in double taxation. In such cases, the competent authorities can resolve the double taxation resulting from the dispute through a Mutual Agreement Procedure (MAP). However, neither the taxpayer nor the tax advisor can directly influence the MAP procedure. Nevertheless, a MAP may still prove the best solution to avoid interminable discussions with the tax authorities should a dispute arise.

If you require more information on this topic, please request our flyer or contact our Transfer Pricing experts directly for details, free of charge.

Flowchart to evaluate impact of Covid-19 on TP-models

Many companies have been hit (and are still hit) by COVID-19 which has had a severe impact on their business activities. As a result the profit level of many companies show a severe downward turn in comparison to previous years. As such the question has to be raised whether these results are sufficiently substantiated and acceptable from a tax/transfer pricing perspective.

The Transfer Pricing Desk has prepared a flowchart to provide you with a high-level 8-step overview of items to be considered when evaluating the impact of COVID-19 on your Transfer Pricing-model in place. As the impact of COVID-19 on business differ significantly over the industries and even within an industry, there is no ‘one size fits all’ solution though this flowchart provide you with some items to consider when evaluating you draft financials/corporate income tax return.

This has become even more important since the OECD clearly stated in its December 2020 guidance that the ‘normal’ Transfer Pricing rules should be obeyed during the COVID-19 pandemic, though that deviations – if clearly substantiated – would be acceptable. So to be able to apply such deviations proper Transfer Pricing documentation is required. As such, a simple reference to COVID-19 as the reason for a deviation in results will not be accepted as proper substantiation.

The flowchart can be achieved via the attached link.

In case you would like further information, please feel free to contact the Transfer Pricing Desk via [email protected].

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Patrick van Leeuwen Senior manager tax advisory T: +316 15 00 32 72