NETHERLANDS LAW AND PRACTICE Contributed by: Friederike Henke, Ingrid Cools, Philip ter Burg, IJsbrand Uljée, Suzan van de Kam and Epke Spijkerman, BUREN
Transactions between the members of a VAT group are not subject to VAT. The right to deduct input VAT is based on the activities of the VAT group as a whole. The VAT group regime only applies if each member of the VAT group quali - fies as a VAT entrepreneur. 5.5 Thin Capitalisation Rules and Other Limitations The Dutch earning stripping rules limit the deduction of excessive interest expenses related to intra-group and third-party payables for Dutch corporate income tax purposes. Under these rules, the starting point is to deter - mine the Dutch taxpayers’ so-called interest expense excess, which is the amount by which the Dutch taxpayers’ tax-deductible interest expenses exceed their taxable interest income. The deductibility of the interest expense excess is limited to 24.5% of the taxpayers’ EBITDA (carving out tax-exempt income) or a safe har - bour threshold of EUR1 million, whichever is higher. Interest disallowed under the earnings stripping rule can be carried forward to later years without any time limitations. Dutch corporate income tax law includes several other rules based on which deduction of interest may be denied, including the anti-tax base erosion rules – see 5.7 Anti- Evasion Rules . 5.6 Transfer Pricing For Dutch tax purposes, transactions between affiliated entities must be performed under the same terms and conditions as would be agreed between non-affiliated entities under similar cir - cumstances (the so-called “arm’s length princi - ple”). If the terms and conditions of an affiliated party transaction are not at arm’s length, the transaction is taxed as if they had been.
For Dutch transfer pricing purposes, companies are considered to be affiliated if one entity partic - ipates (directly or indirectly) in the management, control or capital of another entity, or if the same person participates (directly or indirectly) in the management, control or capital of two entities. Dutch taxpayers must have documentation available showing that the conditions of affiliated party transactions are at arm’s length. In addi - tion, multinationals with a consolidated group turnover of at least EUR750 million in the pre - ceding year are required to file country-by-coun - try (CbC) reports containing detailed information on the transfer pricing policy and the allocation of assets and personnel within the group. CbC reports are exchanged automatically with the tax authorities of all countries in which the multina - tional group operates. Furthermore, Dutch taxpayers that are part of a multinational group with a consolidated turnover of at least EUR50 million in the preceding year must prepare both so-called “master files” and ”local files”. In addition, rules apply based on which hybrid mismatches that arise under the application of the arm’s length principle are neutralised. Based on these rules, downwards fiscal profit adjust - ments, recognition of losses and value increases of assets acquired from affiliated parties (the value increases are also referred to as “informal capital contributions” or ”deemed dividend dis - tributions”) under the application of the arm’s length principle will be denied if, in short, the taxpayer cannot reasonably prove that a corre - sponding upwards adjustment will be included in the tax base in the jurisdiction of the affiliated party.
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