Tax & Legal 9 February, 2024

Transfer pricing: Unlocking benefits for your organization 

Crowe Peak/ Knowledge Hub/ Tax & Legal/

Transfer pricing: Unlocking benefits for your organization 

Determining an arm’s length price for products or services provided within a group, and accurately allocating profits to the right company, poses challenges in intra-group transactions. Establishing an arm’s length transfer price is essential to prevent potential disputes, double taxation, and penalties. Moreover, it can contribute to optimizing business operations. Therefore, implementing a transfer pricing policy for intra-group transactions is essential to mitigate unforeseen costs.

What is transfer pricing? 

Transfer pricing involves establishing prices for internal transactions within a group. This becomes important especially when group entities operate in different jurisdictions. The primary objective of transfer pricing is to ensure that the pricing of these internal transactions is at arm’s length, making them comparable to transactions between independent third parties. Within group entities, internal prices can be determined by the group itself, potentially resulting in an arbitrary shift of revenues to low-tax jurisdictions and costs to high-tax jurisdictions. Such practices can lead to complications with Dutch and foreign tax authorities. 

What is a transfer pricing policy? 

A transfer pricing policy is a systematic approach to determining business prices within a group. It offers a structured framework for allocating revenues and costs accurately among the entities involved, thereby enhancing the tax position across different jurisdictions. Furthermore, the implementation of a well-crafted transfer pricing policy can yield valuable insights into the performance of diverse business functions within the group. Formulating an effective transfer pricing policy requires a deep understanding of international and national tax laws, combined with a comprehensive analysis of the business activities conducted within the group. Therefore, engaging a specialized party for this purpose is highly advisable. 

Is a transfer pricing policy mandatory in the Netherlands? 

Companies subject to Dutch corporate income tax (vennootschapsbelasting) are required to maintain transfer pricing terms consistent with those that could have been agreed upon by third parties. Moreover, these companies must document the process by which transfer prices were determined, providing insight into whether conditions align with those that would be agreed upon by third parties. Lastly, companies within a group with consolidated group sales of at least EUR 50 million must include a group file and local file in their records. These files should give specific information about the group and relevant entities. Curious to learn more about this filing? Do not hesitate to contact us. 

What are the benefits of a transfer pricing policy? 

In recent years, the Netherlands has witnessed a significant rise in audits, lawsuits, and corrections linked to transfer pricing disputes. In practice, it has become evident that numerous international organizations either inadequately apply transfer pricing or lack proper documentation, leading to disputes with the Dutch Tax Authorities regarding the applied transfer pricing policy. Additionally, with the introduction of new international regulations, the intricacy of transfer pricing rules is anticipated to grow. The Dutch Tax Authorities emphasize the importance of arm’s length pricing in intra-group transactions, and a well-documented policy signifies an organization’s understanding of the intricacies of transfer pricing, demonstrating a commitment to transparency and compliance. 

To mitigate the risk of disputes and tax adjustments, it is highly advisable for internationally operating companies, whether based in the Netherlands or elsewhere, to proactively implement a transfer pricing policy. Such a policy not only minimizes the likelihood of tax disputes by fostering transparent and compliant pricing within the group but also presents an opportunity to optimize tax efficiency, potentially resulting in reduced tax liabilities. 

Crowe Peak: Customized transfer pricing policies 

The Crowe Peak team comprises well-experienced tax specialists, financial advisors, accountants, international mobility advisors, and lawyers. This diverse expertise positions Crowe Peak as the preferred choice for crafting a personalized transfer pricing policy for your (international) organization. Interested in learning more about our offerings in tax and structural advice? Reach out to us for an informal discussion. 

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