NETHERLANDS LAW AND PRACTICE Contributed by: Jimmie van der Zwaan, Rob Langeveldt, Vasisthà Parmessar, Willem Koeleman and Bart-Jan Paardekooper, Borgen Tax
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 comparable uncontrolled price (CUP) method, the resale price method and the cost-plus meth - od – 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 cho - sen method leads to an arm’s length outcome for the specific transaction in view of the relevant facts and circumstances. Furthermore, the tax - payer is not obliged to use multiple methods. The taxpayer has to substantiate their choice of method. 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 Guidelines include a preference for the CUP method. 3.2 Unspecified Methods In principle, a taxpayer has to 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 Guide - lines, where it is stated that the taxpayer can also apply a method other than the five accept - able OECD methods, if this is deemed more appropriate.
3.3 Hierarchy of Methods There is no strict hierarchy of methods in the Netherlands. However, if comparable market prices are available, the CUP method may be the most direct and most reliable way of determining the transfer price and may therefore be prefer - able to the other methods. The CUP method is often applied to determine interest rates or com - modity prices. Since a CUP is often unavailable due to a lack of sufficiently comparable data, in practice the TNMM is the most frequently used transfer pricing method. 3.4 Ranges and Statistical Measures The DTA recognises that in some cases, an exact transfer price cannot be determined and that transfer pricing is not an exact science. It is common in practice to apply the median of a benchmark of identified comparables for the pricing of transactions. One would only use the lower quartile or upper quartile of the range if economic arguments supported this position. In establishing the range, a distinction must be made between accurate and less accurate comparables. When the comparables possess a high degree of comparability, then the range is composed of all these quantities. When less accurate comparables are used because of a lack of more appropriate ones, it may be neces - sary to increase the reliability of the comparables with the aid of statistical methods. An example is the “interquartile range” approach. Once the range has been established, it is nec - essary to assess whether the fee for the trans- action under review falls within the established range. If the fee falls within the range, no adjust - ment should be made. In the event that the fee falls outside the range and the taxpayer is unable to explain the deviation with sufficient documen - tation, an adjustment may be necessary.
266 CHAMBERS.COM
Powered by FlippingBook