Transfer pricing in the Netherlands

Companies with intercompany transactions must stay updated on transfer pricing in the Netherlands to avoid penalties and ensure tax compliance. Therefore, below is an overview of the key requirements regarding transfer pricing in the Dutch context. Need immediate advice from our tax advisors on this topic? Please do not hesitate to contact us.

What are the transfer pricing in the Netherlands requirements and their purpose?

What is transfer pricing? 

Transfer pricing refers to the pricing of inter-firm transactions between related parties. Group relationships may lead to special conditions in intercompany arrangements for goods or services that differ from market standards. Transfer pricing removes special conditions in intercompany transactions, ensuring related parties act as independent entities in an open market. This is referred to as the arm’s length principle which treats group members as separate entities. And allows profits (and thus, taxation) to be fairly attributed to the relevant jurisdictions.  

Transfer Pricing in the Netherlands and Dutch Regulations

The arm’s length principle was formally codified in Dutch tax law in 2002 under Article 8b of the CITA 1969. A 2001 regulation clarified the link between OECD Transfer Pricing Guidelines and Dutch transfer pricing rules under national tax law. This regulation was updated via the Government Gazette 26874, published on the 22^nd of April 2018, (“GG-26784”). GG-26874 named the Organisation for Economic Co-operation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Published in Paris 2017 (“OECD Guidelines”) an appropriate interpretation and clarification of the principle set out in Article 8b of the CITA. GG-16685, replacing GG-26874 on 1 July 2022, aligns closely with principles from the 2022 OECD Transfer Pricing Guidelines.

Transfer Pricing in the Netherlands: Domestic Applicability    

OECD Guidelines cover cross-border pricing, but GG-16685 paragraph 10(2) requires documentation for both national and cross-border affiliated transactions.

Download: Requirements for Dutch transfer pricing

Sections 29b-h CITA require qualifying taxpayers to prepare a Local File, Master File, and Country-by-Country Reporting documentation. We have condensed these requirements into a clear table. Download the document here!

What is a transfer pricing policy and what is its purpose? 

Transfer pricing in the Netherlands involves documenting a company’s approach and strategy for pricing intercompany (local or foreign) transactions. No legislated requirements exist, but transfer pricing policy documentation generally focuses on four main aspects.

• What functions are being performed by each entity involved in the transaction; 
• What assets are being utilized by each entity involved in the transaction;  
• What risks are being assumed by each entity involved in the transaction; and 
• What pricing policy is deemed appropriate (‘arm’s length’) based on the relevant transaction’s facts and circumstances. 

It is also advisable that this pricing policy and its pricing range are based on a current benchmarking study.  

When is transfer pricing in the Netherlands applicable for having a transfer pricing policy in place?

Under Dutch law, a transfer pricing policy should be put in place when a company enters into any intercompany transactions. Transfer pricing documentation may suffice if your company’s consolidated revenue is below 50 million EUR for Master and Local Files. Note: The 50 million EUR threshold applies to Dutch corporate tax; other jurisdictions may have higher or lower thresholds.

Transfer pricing in the Netherlands and the local file

What is a Local File and what is its purpose?  

A Local File provides insight into the local operations in a specific jurisdiction of the group. This may be prepared on an entity level or on a country level. The purpose of a Local File is to document the operations of the local entity(ies). The relevant intercompany transactions that it/they may be involved in or a party to. It is also to provide an overview of the strategic decision-making functionality, financial and tax positions of that/those particular entity(ies). 

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

Article 29g(4) of the Dutch CITA 1969 requires Dutch companies engaging in related-party transactions to comply with documentation rules. That has a consolidated group revenue of 50 million EUR is required to prepare a Local File. Article 29g(1) of the CITA requires the Local File to be prepared when submitting the Corporate Income Tax Return (CITR). And many advisors may not submit your CITR without confirmation that your Local File if needed, has been completed. Contrary to some other jurisdictions, there is no requirement to submit a Local File to the Dutch tax authorities. Unless you have been requested to do so, In this event if you have met the revenue threshol. The Local 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 must the Local File meet to comply with transfer pricing in the Netherlands legislation?

Section 10.1 of GG-26874 (2022) details DB2015/462M regulations outlining the required content of the Local File documentation. The DB205/462M is largely reflective of Annex II to Chapter V of the OECD Guidelines. The Annex requires these items to be included and addressed in the Local File for it to be considered complete:

Local entity 

1. Description of local management structure, organization chart, reporting individuals, and jurisdictions of their principal offices.
2. Detailed description of local entity’s business, strategy, restructurings, intangible transfers, and their impact in current or past year.
3. Key competitors. 

Controlled transactions 

For each material category of controlled transactions in which the entity is involved, provide the following information: 

1. Description of material controlled transactions and their context, including services, goods, loans, guarantees, and intangible licenses.
2. Amounts of intra-group payments and receipts per controlled transaction type, detailed by tax jurisdiction of foreign payor or recipient.
3. An identification of associated enterprises involved in each category of controlled transactions, and the relationship amongst them. 
4. Copies of all material intercompany agreements concluded by the local entity. 
5. Detailed comparability and functional analysis of taxpayer and related enterprises for each controlled transaction category, referencing master file if overlapping.
6. Indicate the most appropriate transfer pricing method for the transaction category and explain the reasons for its selection.
7. Indicate the selected tested party among associated enterprises, if applicable, and explain the reasons for this selection.
8. A summary of the important assumptions made in applying the transfer pricing methodology. 
9. If relevant, an explanation of the reasons for performing a multi-year analysis. 
10. List and describe selected comparable uncontrolled transactions, including financial indicators, search methodology, and information sources used in analysis.
11. Description of comparability adjustments made to tested party results, comparable transactions, or both, with clear indication provided.
12. Explanation of why transactions were priced at arm’s length based on applying the chosen transfer pricing method.
13. A summary of financial information used in applying the transfer pricing methodology. 
14. Copies of unilateral, bilateral, or multilateral APAs and tax rulings related to controlled transactions, excluding local jurisdiction involvement.

Financial information 

1. Annual local entity financial accounts for the fiscal year concerned. If audited statements exist, they should be supplied and if not, existing unaudited statements should be supplied. 
2. Information and allocation schedules demonstrating how financial data for transfer pricing methods link to the company’s annual financial statements. 
3. Summary schedules of relevant financial data for comparables used in analysis, including sources from which the data was obtained.

The Local File must be contemporaneous, containing updated information and, if relevant, current benchmarking studies. This generally means that a Local File is prepared or updated annually. 

Transfer pricing policies and the master file

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 usually prepared by the parent company and filed by local group entities if required. The Master File documents business aspects, focusing on the main transfer pricing policies of the Group Entities. It includes 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 must be met for the Master File to be compliant with transfer pricing in the Netherlands?

 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; 
• Describe the supply chain for the group’s top five products/services by turnover and others exceeding 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; 
• Describe the main geographic markets for the group’s products and services mentioned in the previous point.
• A brief functional analysis of key functions, significant risks, and important assets contributing to value creation within the group’s entities.
• A description of important business restructuring transactions, acquisitions and divestitures occurring during the fiscal year. 

Group’s intangibles (as defined in Chapter VI of the(se) Guidelines) held by a multinational enterprise 

• A general description of the MNE group’s strategy for intangible assets, including principal R&D facilities and R&D management locations.
• A list of key intangibles for transfer pricing and the MNE group entities that legally own these intangibles.
• A list of key agreements among associated enterprises related to intangibles, including cost contributions, research services, and licenses.
• A general description of the group’s transfer pricing policies related to R&D and intangibles; 
• A description of significant intangible interest transfers among associated enterprises during the fiscal year, detailing entities, jurisdictions, and compensation.

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. 

Transfer pricing and country-by-country reporting (CbC) 

What is a CbC and what is its purpose?  

A CbC Report (“CbCR”) can be seen as similar to the Master File in the sense that it provides further insight into the group. However, the CbCR focuses on the global allocation of the group’s income and taxes paid, together with certain indicators of the location of economic activity within the group. CbCRs also require a list of all the entities for which financial information is reported, including the tax jurisdiction of incorporation, where different from the tax jurisdiction of residence, as well as the nature of the main business activities carried out by that entity.

CbC comes in two forms either as a CbCR or a CbC Notification (“CbCN”) and the form that is applicable to you will depend on where in the shareholding hierarchy you are (discussed further in the paragraph below). A CbCR is especially helpful for high-level transfer pricing risk assessment purposes and may be used by tax administrations in evaluating other Base Erosion and Profit Shifting (“BEPS”) related risks. Please note, however, that a CbCR is not considered to be a substitute for a detailed transfer pricing analysis and will not constitute conclusive evidence that the group’s transfer prices are or are not appropriate. 

When is it required to prepare/submit a CbC? 

Article 29c(5) of the Dutch CITA, 1969, states that CbC reporting requirements do not relate to any group entities of a multinational group which, in the year under review, immediately preceding the year to which the CbC relates, have less than 750 million EUR in consolidated group revenue. While the wording might be a little confusing if your entity is part of a multinational group that earns above 750 million EUR in the relevant financial year, you will be required to submit a form of CbC reporting.  

As mentioned above, the form you will be required to submit will depend on where you are in the group’s structural hierarchy. If your entity is the Ultimate Parent Entity (“UPE”) (i.e., the entity responsible for reporting in the group) or the Surrogate Parent Entity (“SPE”) (i.e., an entity of the group that has been appointed by such group, as a sole substitute for the UPE.

To file the CbCR in that entity’s jurisdiction of tax residence, on behalf of such group, when certain conditions apply), then you will be required to prepare and submit a CbCR, if you are not a UPE or SPE, then you will be required to prepare and submit a CbCN. Article 29d of the CITA requires that if you are not a UPE or SPE, you will need to inform the tax inspector by the last day of the reporting year, through a CbCN, of the identity and tax residency of the Reporting Entity. Article 29c (1) of the CITA requires that the CbCR be completed and submitted within 12 months of the financial year end of the year under review.  

What requirements need to be met to consider the CbCR compliant with transfer pricing in the Netherlands?

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 contents of the CbCR. The DB205/462M is largely reflective of Annex III to Chapter V of the OECD Guidelines. As per the Annex, the following items need to be present and addressed in the CbCR for it to be considered complete: 

Overview of allocation of income, taxes, and business activities by tax jurisdiction (Table 1) 

Tax Jurisdiction

In the first column of the template, the Reporting MNE should list all the tax jurisdictions in which Constituent Entities of the MNE group are resident for tax purposes. A tax jurisdiction is defined as a State and a non-State jurisdiction with fiscal autonomy. A separate line should be included for all Constituent Entities in the MNE group deemed by the Reporting MNE not to be resident in any tax jurisdiction for tax purposes.  

Where a Constituent Entity is resident in more than one tax jurisdiction, the applicable tax treaty tie breaker should be applied to determine the tax jurisdiction of residence. Where no applicable tax treaty exists, the Constituent Entity should be reported in the tax jurisdiction of the Constituent Entity’s place of effective management.  

Effective management is where key management and commercial decisions necessary for the conduct of the entity’s business are in substance made. All relevant facts and circumstances must be examined to determine the place of effective management. An entity may have more than one place of management, but it can have only one place of effective management at any one time. 

Revenues

In the three columns of the template under the heading Revenues, the Reporting MNE should report the following information: (i) the sum of revenues of all the Constituent Entities of the MNE group in the relevant tax jurisdiction generated from transactions with associated enterprises; (ii) the sum of revenues of all the Constituent Entities of the MNE group in the relevant tax jurisdiction generated from transactions with independent parties; and (iii) the total of (i) and (ii). Revenues should include revenues from sales of inventory and properties, services, royalties, interest, premiums, and any other amounts. Revenues should exclude payments received from other Constituent Entities that are treated as dividends in the payor’s tax jurisdiction. 

Profit (Loss) before Income Tax

In the fifth column of the template, the Reporting MNE should report the sum of the profit (loss) before income tax for all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. The profit (loss) before income tax should include all extraordinary income and expense items. 

Income Tax Paid (on Cash Basis) 

In the sixth column of the template, the Reporting MNE should report the total amount of income tax paid during the relevant fiscal year by all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. Taxes paid should include cash taxes paid by the Constituent Entity to the residence tax jurisdiction and to all other tax jurisdictions. Taxes paid should include withholding taxes paid by other entities (associated enterprises and independent enterprises) with respect to payments to the Constituent Entity. Thus, if company A is resident in tax jurisdiction A earns interest in tax jurisdiction B, the tax withheld in tax jurisdiction B should be reported by company A. 

Income Tax Accrued (Current Year) 

In the seventh column of the template, the Reporting MNE should report the sum of the accrued current tax expense recorded on taxable profits or losses of the year of reporting of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. The current tax expense should reflect only operations in the current year and should not include deferred taxes or provisions for uncertain tax liabilities. 

Stated Capital 

In the eighth column of the template, the Reporting MNE should report the sum of the stated capital of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. About permanent establishments, the stated capital should be reported by the legal entity of which it is a permanent establishment unless there is a defined capital requirement in the permanent establishment tax jurisdiction for regulatory purposes. 

Accumulated Earnings 

In the ninth column of the template, the Reporting MNE should report the sum of the total accumulated earnings of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction as of the end of the year. Regarding permanent establishments, accumulated earnings should be reported by the legal entity of which it is a permanent establishment. 

Number of Employees 

In the tenth column of the template, the Reporting MNE should report the total number of employees on a full-time equivalent (FTE) basis of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. The number of employees may be reported as of the year-end, based on average employment levels for the year, or on any other basis consistently applied across tax jurisdictions and from year to year. For this purpose, independent contractors participating in the ordinary operating activities of the Constituent Entity may be reported as employees. Reasonable rounding or approximation of the number of employees is permissible, providing that such rounding or approximation does not materially distort the relative distribution of employees across the various tax jurisdictions. Consistent approaches should be applied from year to year and across entities. 

Tangible Assets other than Cash and Cash Equivalents 

In the eleventh column of the template, the Reporting MNE should report the sum of the net book values of tangible assets of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. Regarding permanent establishments, assets should be reported by reference to the tax jurisdiction where the permanent establishment is situated. Tangible assets for this purpose do not include cash or cash equivalents, intangibles, or financial assets. 

List of all the Constituent Entities of the MNE group included in each aggregation per tax jurisdiction (Table 2)

Constituent Entities Resident in the Tax Jurisdiction 

The Reporting MNE should list, on a tax jurisdiction-by-tax jurisdiction basis and by legal entity name, all the Constituent Entities of the MNE group which are resident for tax purposes in the relevant tax jurisdiction. As stated above regarding permanent establishments, however, the permanent establishment should be listed by reference to the tax jurisdiction in which it is situated. The legal entity of which it is a permanent establishment should be noted (e.g., XyZ Corp – Tax Jurisdiction A permanent establishment). 

Tax Jurisdiction of Organization or Incorporation if Different from Tax Jurisdiction of Residence 

The Reporting MNE must report the tax jurisdiction of the Constituent Entity if different from its tax residence jurisdiction. 

Main Business Activity(ies) 

The Reporting MNE must identify the Constituent Entity’s core business activities in the tax jurisdiction by selecting appropriate categories.

• Business Activities 
• Research and Development 
• Holding or Managing Intellectual Property 
• Purchasing or Procurement 
• Manufacturing or Production 
• Sales, Marketing or Distribution 
• Administrative, Management or Support Services 
• Provision of Services to Unrelated Parties 
• Internal Group Finance 
• Regulated Financial Services 
• Insurance 
• Holding Shares or Other Equity Instruments 
• Dormant 
• Other (please specify the nature of the activity of the Constituent Entity in the “Additional  
• Information” section.) 

As the CbCR relates to very specific information in that particular financial year, it is also a requirement that the CbCR prepared needs to be contemporaneous (i.e., reflect updated/current information). This generally means that a CbCR is prepared or updated annually. 

What are the consequences of not being compliant with transfer pricing in the Netherlands legislation?

If the relevant CbCR, master file, local file and/or other transfer pricing documentation is not prepared correctly or submitted in a timely manner, you may be liable for an administrative penalty of between 515 EUR and 25,750 EUR. If you are uncertain whether your company meets the criteria for transfer pricing documentation or if your transfer pricing policy is compliant from a Dutch standpoint, reach out to us. Crowe Peak’s team includes highly experienced tax professionals with expertise in transfer pricing, who can assist you in evaluating your transfer pricing requirements effectively.