NETHERLANDS LAW AND PRACTICE Contributed by: Jimmie van der Zwaan, Rob Langeveldt, Vasisthà Parmessar, Willem Koeleman and Bart-Jan Paardekooper, Borgen Tax
14. Judicial Precedent 14.1 Judicial Precedent on Transfer Pricing There is not much litigation in the area of transfer pricing since most disputes are settled without going to court. The DTA usually only institutes legal proceedings 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 the purpose of determining the parent company’s profit, transactions with subsidiar - ies 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 transac - tion with third parties had taken place, but the Supreme Court rejected this reasoning. Internal transactions thus cannot be delayed until exter - nal transactions have taken place, but should be accounted for in accordance with the arm’s length principle. 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 reasonable. It had been considered customary to determine 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 bur -
ities and taxpayers. Eventually, the inspector will or will not make a correction and this can be challenged in an objection to the DTA and in sub - sequent appeal proceedings. After the taxpayer has objected to the DTA, the taxpayer can make an appeal before a district court. After the district court has issued a judg - ment, an appeal can be initiated with the Court of Appeal and then with the Dutch Supreme Court. Since transfer pricing discussions are often complex and extensive, such procedures tend to take a long time. It is also important to note that the judges involved are generally not trans - fer pricing specialists and it is difficult to predict the outcome of proceedings. Since transfer pric - ing is not an exact science, the burden of proof On the basis of a tax treaty, a MAP is (usu - ally) possible between tax authorities with the aim of eliminating double taxation (Stcrt No 2020/32689). Although a MAP between coun - tries based on a bilateral tax treaty will often lead to a result whereby no double taxation remains, this is certainly not guaranteed. This can there - fore lead to double taxation taking place. Cur - rently, 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). is relatively important. MAPs and Arbitration
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