International Tax 14 March, 2024

Transfer pricing policies and the Master File 

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Transfer pricing policies and the Master File 

Transfer pricing documentation in the Netherlands – Part III  

Transfer pricing is a specialized field that demands well-defined policies for successful execution, as we have covered in earlier articles. These policies not only serve as a guide for transfer pricing but also play a crucial part in creating the “Master File”. Unlike the Local File, which focuses on transactions within a specific jurisdiction, the Master File provides a comprehensive overview of the global operations of a multinational enterprise group. It includes information on the group’s organizational structure, business activities, intangible assets, and financial performance. To address frequently asked questions about transfer pricing policies and Master Files under Dutch law, we offer an overview below (for the overview of FAQs regarding the Local File click here). If you need guidance on transfer pricing or assistance in developing and documenting a transfer pricing policy, Local File or Master File, our team of tax advisors at Crowe Peak is available to support your organization. Feel free to reach out for expert assistance. 

What is a Master File and what is its purpose?  

A Master File is similar to a Local File in that it provides insight into the operations of the Group, however, the difference here is that the Master File details the operations of the entire Group. The Master File is generally completed by a headquarters or parent entity and is filed, if required, by the local entity(ies) of the Group. The purpose of a Master File is to document various aspects relating to the business – with a focus on the main transfer pricing policies – of the Group Entities, an outline of the Group structure – including any restructurings within the Group – the intangible assets owned or used by the Group, the financing arrangements within the Group and the relevant tax and financial positions throughout the Group.  

When is it required to prepare/submit a Master File? 

Article 29g(4) of the Dutch CITA (Wet op de Vennootschapsbelasting), 1969, states that any Dutch company that enters related party transactions (local or foreign) that has a consolidated group revenue of over 50 million EUR is required to have a Master File prepared. Article 29g(1) of the CITA requires that your Master File be prepared at the time of submission of your Corporate Income Tax Return (“CITR”) and many advisors may not submit your CITR without confirmation that your Master File, if needed, has been completed. Contrary to some other jurisdictions, there is no requirement to submit a Master File to the Dutch tax authorities unless you have been requested to do so. In this event, if you have met the revenue threshold, the Master File is considered to have already been completed and therefore, there is generally no grace period extended other than the normal timing that the Dutch tax authorities will allow to send in documentation.  

What requirements need to be met to consider the Master File compliant with Dutch legislation?

 As per Section 10.1 of GG-26874, 2022, The Transfer Pricing Supplementary Documentation Requirements Regulations of 30 December 2015 (“DB2015/462M”) lays out the requirements for the content of the Master File. The DB205/462M is largely reflective of Annex I to Chapter V of the OECD Guidelines. As per the Annex, the following items need to be present and addressed in the Master File for it to be considered complete: 

Organizational structure 

  • Chart illustrating the MNE group’s legal and ownership structure and geographical location of operating entities. 

Description of MNE group’s business(es) 

General written description of the MNE group’s business including: 

  • Important drivers of business profit; 
  • A description of the supply chain for the group’s five largest products and/or service offerings by turnover plus any other products and/or services amounting to more than 5% of group turnover. The required description could take the form of a chart or a diagram; 
  • A list and brief description of important service arrangements between members of the MNE group, other than research and development (R&D) services, including a description of the capabilities of the principal locations providing important services and transfer pricing policies for allocating services costs and determining prices to be paid for intra-group services; 
  • A description of the main geographic markets for the group’s products and services that are referred to in the second bullet point above; 
  • A brief written functional analysis describing the principal contributions to value creation by individual entities within the group, i.e., key functions performed, important risks assumed, and important assets used; 
  • A description of important business restructuring transactions, acquisitions and divestitures occurring during the fiscal year. 

MNE group’s intangibles (as defined in Chapter VI of the(se) Guidelines) 

  • A general description of the MNE group’s overall strategy for the development, ownership, and exploitation of intangibles, including location of principal R&D facilities and location of R&D management; 
  • A list of intangibles or groups of intangibles of the MNE group that are important for transfer pricing purposes and which entities legally own them; 
  • A list of important agreements among identified associated enterprises related to intangibles, including cost contribution arrangements, principal research service agreements and license agreements; 
  • A general description of the group’s transfer pricing policies related to R&D and intangibles; 
  • A general description of any important transfers of interests in intangibles among associated enterprises during the fiscal year concerned, including the entities, jurisdictions, and compensation involved.  

MNE group’s intercompany financial activities 

  • A general description of how the MNE group is financed, including important financing arrangements with unrelated lenders; 
  • The identification of any members of the MNE group that provide a central financing function for the group, including the jurisdiction under whose laws the entity is organized and the place of effective management of such entities; 
  • A general description of the MNE group’s general transfer pricing policies related to financing arrangements between associated enterprises. 

MNE group’s financial and tax positions 

  • The MNE group’s annual consolidated financial statement for the fiscal year concerned if otherwise prepared for financial reporting, regulatory, internal management, tax, or other purposes; 
  • A list and brief description of the MNE group’s existing unilateral advance pricing agreements (APAs) and other tax rulings relating to the allocation of income among jurisdictions. 

It is also a requirement that the Master File prepared needs to be contemporaneous (i.e., reflect updated/current information). This generally means that a Master File is prepared or updated annually. 

What are the consequences of not being compliant with Dutch legislation? 

In the event that the relevant transfer pricing documentation is not prepared and submitted post the Dutch tax authorities having requested this, you may be liable for an administrative penalty of between 515 EUR and 25 750 EUR. In addition, the lack of or incomplete transfer pricing documentation will shift the burden of proof regarding the arm’s length nature of the relevant transactions entered by the Group in case of discussions with the Dutch tax authorities. 

Attention: If you are unsure whether your company meets the requirements for transfer pricing documentation or if your Master File can be considered compliant from a Dutch perspective, be sure to contact us and we can help you evaluate what your transfer pricing needs are. 

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