NETHERLANDS Law and Practice Contributed by: Jimmie van der Zwaan, Rob Langeveldt, Vasisthà Parmessar and Willem Koeleman, Borgen Tax
Court of Appeal’s Gravenhage 13 June 1984, No 87/84, BNB 1986/13 The Court of Appeal considered a 10% mark-up on services purchased from an Irish group company rea - sonable. It had been considered customary to deter - mine the compensation for the services rendered in relation to the costs incurred. What the taxpayer paid over and above this 10% was part of the taxpayer’s profit. Supreme Court 28 June 2002, No 36 446, BNB 2002/343 The Supreme Court ruled that the burden of proof that the taxpayer had not been dealing at arm’s length rested with the tax inspector and that the tax inspector did not meet this burden of proof. The Supreme Court also referred to the OECD Guidelines for the applica - tion of the arm’s length principle and transfer pricing methods. The case was about a car importer of an international car brand that incurred a loss relating to import and sales of its most-sold car. However, over the total of goods imported and sold, the car importer remained profitable. The potential existence of offset - ting transactions was acknowledged. The tax inspec - tor unsuccessfully claimed that the purchase price of the most-sold car was too high. Court of Appeal Amsterdam 20 August 2003, No 01/04083, V-N 2004/30.16 This case concerned a flow-through company with nearly risk-free intra-group borrowing and lending activity. According to the court, a cost-plus surcharge of 10% was appropriate in this case. The Ministry of Finance did not file an appeal in cassation but pub - lished that according to APA practice, the compensa - tion should be related to the loan amount. For loan amounts below EUR100 million, this can be partly determined on a cost-plus basis. Court Arnhem 7 March 2007, No AWB 06/288, V-N 2007/35.6 The court ruled on transfer prices between the tax - payer and its Chinese affiliate. The tax inspector suc - ceeded in proving that the transfer prices were not arm’s length in so far as the compensation for the limited procurement activities of the Chinese affiliate exceeded a cost-plus mark-up of 10%.
Since transfer pricing discussions are often com - plex and extensive, such procedures tend to take a long time. It is also important to note that the judges involved are generally not transfer pricing specialists and it is difficult to predict the outcome of proceed - ings. Since transfer pricing is not an exact science, the burden of proof is relatively important. MAPs and Arbitration On the basis of a tax treaty, a MAP is (usually) pos - sible between tax authorities with the aim of eliminat - ing double taxation (Stcrt No 2020/32689). Although a MAP between countries based on a bilateral tax treaty will often lead to a result whereby no double taxation remains, this is certainly not guaranteed. This can therefore lead to double taxation taking place. Currently, there is a trend towards including a man - datory arbitration clause in tax treaties to ensure that double taxation is avoided in all cases (eg, the EU Arbitration Convention and the arbitration provisions in the Multilateral Instrument). 14. Judicial Precedent 14.1 Judicial Precedent on Transfer Pricing There is not much litigation in the area of transfer pric - ing since most disputes are settled without going to court. The DTA usually only institutes legal proceed - ings in cases where the parties cannot agree from a theoretical perspective and where the financial impact is significant. 14.2 Significant Court Rulings Supreme Court 8 May 1957, No 12 931, BNB 1957/208 For determining the parent company’s profit, transac - tions with subsidiaries must be reported as if they had taken place with a third party. The taxpayer argued that profit should only be reported as soon as a transaction with third parties had taken place, but the Supreme Court rejected this reasoning. Internal trans - actions thus cannot be delayed until external transac - tions have taken place but should be accounted for in accordance with the arm’s length principle.
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