NETHERLANDS Law and Practice Contributed by: Jimmie van der Zwaan, Rob Langeveldt, Vasisthà Parmessar and Willem Koeleman, Borgen Tax
price would have been 200. Based on previous legislation, the asset should be booked on the tax balance sheet for an amount of 200 and depreci - ated accordingly. While with the current legislation, this depends on whether the arm’s length price is reported as taxable income. If the foreign coun - try only taxes 75 as income, the Dutch company should book the asset on its tax balance sheet for the same amount and may only depreciate the asset accordingly if appropriate. Regarding this example, the legislation can also affect transac - tions that have already taken place, as well as taxable income in the Netherlands from 2022 onwards. This relates to assets that have been acquired from affiliated companies since mid-2019, that were depreciated in 2022 and afterwards, in this way matching the changes to the Dutch ruling practice. The legislation does not consider at what rate the income is taxed in the foreign country, a zero rate could therefore avoid application of the legislation. 2. Definition of Control/Related Parties 2.1 Application of Transfer Pricing Rules Associated Enterprises in Dutch Tax Law Transfer pricing is only relevant for transactions between associated enterprises. In Dutch tax law, the term “associated enterprise” is defined in Article 8b(1) and (2) of the DCITA. Parliamentary history indicates that the definition of the term “associated enterprise” in Article 9 of the OECD Model Convention was fol - lowed. Pursuant to Article 8b of the DCITA, an enterprise is an associated enterprise if: • it participates, directly or indirectly, in the manage - ment, control or capital of another enterprise; or • the same taxpayer participates, directly or indi - rectly, in the management, control or capital of two enterprises. The degree of participation in the management, con - trol or capital is not elaborated on in the DCITA. In the explanatory memorandum to the legislative proposal,
it is specified that the shareholder, supervisor and/ or director have sufficient control to be able to exert influence regarding the determination of the prices for transactions that take place between the enti - ties involved. It is intended that the term “associated enterprises” be interpreted broadly, for which reason there is no percentage threshold. As a result, it is rela - tively easy to be in scope. 3. Methods and Method Selection and Application 3.1 Transfer Pricing Methods Chapter II of the OECD Guidelines discusses the three traditional transaction methods – the compa - rable uncontrolled price (CUP) method, the resale price method and the cost-plus method – and the two transactional-profit methods – the profit-split method and the transactional net margin method (TNMM). Depending on the circumstances, a choice should be made from one of these five acceptable methods. According to the Dutch TP Decree, the DTA will always start its transfer pricing analysis from the perspective of the method used by the taxpayer. The taxpayer is, in principle, free to choose any transfer pricing method, provided that the chosen method leads to an arm’s length outcome for the specific transaction in view of the relevant facts and circumstances. Furthermore, the taxpayer is not obliged to use multiple methods. The taxpayer must substantiate their choice of meth - od. The TP Decree does acknowledge that a CUP is often difficult to find and that therefore the TNMM will be applied in many cases, while the OECD TP Guide - lines include a preference for the CUP method. 3.2 Unspecified Methods In principle, a taxpayer must choose one of the five acceptable OECD methods discussed in 3.1 Transfer Pricing Methods . It is up to the taxpayer to select an appropriate method. In the parliamentary history, a reference has been made to paragraph 2.9 of the OECD TP Guidelines, where it is stated that the tax - payer can also apply a method other than the five acceptable OECD methods, if this is deemed more appropriate.
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