Transfer pricing documentation. What is it and do you need it?

What is it and do you need it?

Does your company engage in national or cross-border intercompany transactions? If so, you must demonstrate that you apply conditions similar to those that third parties would in comparable situations.

Read also: transfer pricing methods

What is transfer pricing documentation

Transfer pricing documentation explains how transfer prices are determined and why these prices and other relevant conditions are comparable to those applied by independent parties in similar situations. This documentation demonstrates to tax authorities that you comply with the legal obligation to apply arm’s length prices to your intra-group transactions.

Which companies are required to maintain transfer pricing documentation?

Dutch law sets minimum requirements for participation and intra-group transactions. Participation can occur through involvement in capital, supervision, or management, or when a company or person participates in the capital, supervision, or management of two other companies. There are no strict thresholds to determine participation. Legislative history indicates that there must be sufficient control to influence the determination of transaction prices. As such, small businesses may also have a transfer pricing documentation obligation.

If all companies with intra-group transactions are part of the same fiscal unity for corporate income tax purposes, there are currently no intra-group transactions for tax purposes, and no documentation requirement. However, due to recent European court rulings, experts question whether this is sustainable under EU freedoms.

Requirements for Dutch transfer pricing documentation

In 2016, the Netherlands introduced two forms of transfer pricing documentation:

1. Dutch transfer pricing documentation.
2. International master file and local file.

Download: Requirements for Dutch transfer pricing

Sections 29b-h of the Dutch Corporate Income Tax Act (CITA) outline documentation requirements for taxpayers meeting certain criteria, including a Local File, a Master File, and relevant Country-by-Country Reporting. We have summarized these requirements in a clear table. Download the document here!

Dutch transfer pricing documentation

Dutch transfer pricing documentation is mandatory for purely Dutch companies and multinationals with a consolidated group turnover of less than €50 million in the previous year. There are no fixed requirements for this documentation, which is a deliberate choice. This allows the scope of the documentation to be adjusted to the size of the company and the nature of its intra-group transactions.

International master file and local file

The international master file and local file are required for multinational companies with a consolidated group turnover of at least €50 million in the previous year. This documentation consists of two separate documents that must be prepared annually: a global master file and a Dutch local file. Both documents have fixed requirements. The Dutch requirements align with the OECD transfer pricing guidelines, which are highly authoritative and followed by many countries worldwide.

Implication of missing transfer pricing documentation

The consequences of not having the required documentation depend on the type of documentation legally mandated. For Dutch transfer pricing documentation, companies must have it available at the time of executing the transactions. In practice, if taxpayers lack the documentation, they are usually given at least four weeks to prepare it. However, retroactively accounting for transfer pricing is not always feasible, and failing to prepare the documentation in advance typically complicates discussions with tax authorities.

For the international master file and local file, a strict deadline applies. These documents must be available within the administration by the deadline for submitting the corporate tax return for the relevant year. Unlike Dutch transfer pricing documentation, there is no opportunity to correct the absence of documentation without consequences. If your company fails to prepare a timely master file or local file, the inspector can impose a fine of approximately €9,000. Additionally, the inspector may shift and increase the burden of proof. You will then have to convincingly demonstrate that any adjustment imposed by the inspector is incorrect. Proving something convincingly in transfer pricing is an almost impossible task. Therefore, the tax inspector can easily impose a transfer pricing adjustment if you do not have timely transfer pricing documentation.

Need assistance or more information?

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