NETHERLANDS LAW AND PRACTICE Contributed by: Jimmie van der Zwaan, Rob Langeveldt, Vasisthà Parmessar, Willem Koeleman and Bart-Jan Paardekooper, Borgen Tax
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. Parliamen - tary history indicates that the definition of the term “associated enterprise” in Article 9 of the OECD Model Convention was followed. Pursuant to Article 8b of the DCITA, an enter - prise is an associated enterprise if: • it participates, directly or indirectly, in the management, control or capital of another enterprise; or • the same taxpayer participates, directly or indirectly, in the management, control or capi - tal of two enterprises. The degree of participation in the management, control or capital are 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 with regard to the determination of the prices for transactions that take place between the entities 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 relatively easy to be in scope.
deduction depends on whether the foreign legislation requires a corresponding adjust - ment; ie, including the arm’s length interest of 5% as taxable income. If this is not the case, the 5% interest may no longer be deducted in the Netherlands. Conversely, this also applies to loans from a Dutch company to a foreign affiliate – where the arm’s length interest is higher than the commercial interest charged, the foreign affiliate will be able to deduct the arm’s length interest for tax purposes. • A Dutch company acquires an asset (eg, an intangible asset) for a price of 75, while an arm’s length 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 depreciated accordingly. While with the current legislation, this depends on whether the arm’s length price is reported as taxable income. If the foreign country 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 transactions that have already taken place, as well as tax - able 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 take into account at what rate the income is taxed in the foreign country, a zero rate could therefore avoid appli - cation of the legislation.
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