NETHERLANDS Law and Practice Contributed by: Michael Molenaars, Jeroen Smits, Reinout de Boer and Rogier van der Struijk, Stibbe
mainly because the principal purpose test is thought to work out proportionately in most situations. Thus, truly business-driven structures, either inbound or outbound, should not be harmed. Nevertheless, the principal purpose test is principle-driven rather than rule-driven, which makes it less clear which structures will be affected by the principal purpose test. In other words, there may be legal uncertainty, espe - cially in the beginning when there is also little practical experience. Furthermore, some countries might apply the principal purpose test liberally, which might make corporations decide to avoid the Netherlands. How - ever, this remains to be seen, especially as in other countries the same issues should come up. 9.10 Transfer Pricing and IP Taxation Aside from the introduction of country-by-country reporting and, to a lesser extent, the documentation requirements (eg, master file and local file), the Neth - erlands has already applied the arm’s length principle as a cornerstone of its transfer pricing regime (see 9.11 Country-by-Country Reporting and Transpar- ency Provisions ). As such, the changes introduced by BEPS should not have a major impact, and this should also apply to intangibles. However, as stated before, legislation that entered into force on 1 January 2022 targeted mismatches result - ing from the application of the arm’s length principle. Among other things, this legislation aims to render the arm’s length principle ineffective between related parties in cross-border situations to the extent that it will deny the deduction of arm’s length expenses if the corresponding income is not included in the basis of a local profit tax at the level of the recipient. In recent case law, examples can also be found in which the arm’s length price of intellectual property that was transferred out of the Netherlands was chal - lenged by the Dutch tax authorities. 9.11 Country-by-Country Reporting and Transparency Provisions Pursuant to Dutch tax law, if transfer prices are applied with regard to transactions between affiliated enti - ties, these entities are, if certain conditions are met, required to document the data demonstrating the way
the relevant transfer prices were established. In addi - tion, it should be possible to assess from that data whether the transfer prices reflect the conditions that independent parties would have had agreed upon. Furthermore, the Netherlands has incorporated the obligation to file a country-by-country report, a mas - ter file and a local file in its domestic tax legislation. These obligations are subject to certain conditions being met. With regard to the filing of a master and local file, an exemption is made with regard to a small or medium-sized entity if its revenue does not exceed EUR50 million. In addition to the BEPS country-by-country report - ing obligation, in 2024, the Netherlands introduced mandatory public country-by-country reporting rules for large multinationals. This additional reporting obli - gation stems from the EU Public Country-by-Country Reporting Directive of 2021 and adds a new angle to the reporting obligation by making such data publicly available to a wider audience. 9.12 Digital Economy Businesses No legislative proposals have been published in this area yet. 9.13 Approach to Digital Services Taxation The State Secretary for Finance favours an interna - tional, co-ordinated (unified) approach, rather than jurisdictions implementing domestic legislation inde - pendently, such as Pillar One and Pillar Two. Con - sequently, the Dutch government has already imple - mented Pillar Two in Dutch domestic law as of 1 January 2024. It should also be noted that as of 1 January 2023, the Seventh Directive on Administrative Cooperation (DAC7) has been implemented into Dutch law. DAC7 contains rules on information exchange regarding digital platforms. Furthermore, the legislative proposal regarding the implementation of the Eighth Directive on Administrative Cooperation (DAC8) was adopted by the House of Representatives. DAC8 introduces rules on information exchange regarding crypto-assets and advance tax rulings for the wealthiest individuals. The new rules, subject to the legislative proposal being adopted by the Senate and entry into force, will have
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