NETHERLANDS Trends and Developments Contributed by: Dirk Brouwers, Wessel van Dijk, Erwin Boomsma and Rocio Martel, RED Transfer Pricing
The assessments related to financial years 2008–2016 and the dispute centred around the question whether various transfer pricing arrangements in those years complied with the arm’s length principle. In addition, significant penalties had been imposed by the tax authorities for misconduct in several years. The case received much attention in the Dutch transfer pricing practice because of its size and complexity. Amongst other items, the dispute centres around fac - toring costs, guarantee fees, royalties paid for “inno - vation and technology” and deduction of interest costs. The biggest adjustment however was related to the termination of a licence agreement under which Tobacco BV had been trading in 2016. The licence rights had been valued at EUR1 billion by the com - pany in prior instance and the Court of Appeal found it unbusinesslike that no compensation was received upon termination of the licence. Relevant in this con - text was that the exploitation of these rights was con - tinued within the group by another entity located in the UK. The transfer pricing adjustment for the termination of the licence amounted to more than EUR1.3 billion. What is remarkable about this judgment, is that the functional substance of Tobacco BV in relation to the exploitation of the licence was limited in the years prior to the termination of the licence. The number of full-time employees engaged in these activities had gone down over time from approximately 50 at the start of the exploitation of the licence to approxi - mately 7–8 by the time the licence was terminated. It appears that the adjustment of more than EUR1.3 billion that was determined by the Court of Appeal as arm’s length compensation for termination of the licence, was based on forecasted profits from exploi - tation of the licence in future years without a review of whether those forecasted profits were justified in view of Tobacco BV’s heavily reduced functional profile. An interesting point in relation to procedural tax law is that the Court of Appeal ruled that the tax authori - ties had successfully demonstrated that Tobacco BV had not filed the required tax returns because the company was aware, or should have been aware, that positions in the tax return were not defensible in view of applicable law and regulations. As a result, the burden of proof was reversed (to the taxpayer) and
increased. The company had brought forward that this evidentiary sanction could not be applied in transfer pricing cases, but this was not accepted by the Court of Appeal. Several penalties were imposed by the tax authorities in this case, the largest in relation to the termination of the licence rights. The penalty of EUR125 million related to the termination of the licence rights (that had been only slightly reduced by the Lower Court) was overturned by the Court of Appeal. Before sub - mitting the 2016 corporation income tax return, the advisors of Tobacco BV had sent a letter to the tax authorities highlighting the relevance of the position would be taken in relation to the termination of the licence. In light of these circumstances the Court of Appeal ruled that Tobacco BV did not knowingly and willingly accept the significant risk that too little cor - porate income tax would be paid when it had filed the corporate income tax return. It appears that the ruling by the Court of Appeal has been brought to the attention of the Supreme Court, so the Court of Appeal ruling may be (partially) over - turned still. Transfer Pricing Memorandums In May 2025, the Transfer Pricing Coordination Group ( Coördinatiegroep Verrekenprijzen or “CGVP”) of the Dutch tax authorities published two memorandums in relation to key considerations for the application of cost-based methods (ie, the Cost-Plus Method (CPM) and the transactional net margin method (TNMM) with a cost-based profit level indicator) and guidance on the tax consequences and pricing assessment of guarantee fees. Subsequently, in December 2025 the CGVP published a practical guide for tax inspectors with a tool kit to identify transfer pricing and tax risks. The CGVP is a specialist group under the Tax and Customs Administration Rijnmond/Rotterdam office; Its mandate includes, among others, providing advice to the competent authority on the positions to be taken in transfer pricing consultation and arbitration proceedings. The below section aims to summarise the guidance recently published by the CGVP.
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