NETHERLANDS TRENDS AND DEVELOPMENTS Contributed by: Jan-Willem Kunen, Natalie Reypens and Gijs van Koeveringe, Loyens & Loeff
the Netherlands to Switzerland. Amongst other things, this case covered: • whether “something of value” was transferred in addition to the market value of assets and liabilities; • the burden of proof; and • the usefulness of an independent valuation expert’s input on the “minimum value” . The Court of Appeal ruled that the functional and risk profile of the transferor and the transferee changed significantly after the reorganisation as, in addition to the transfer of the assets and liabil- ities, ten to twenty employees were relocated to Switzerland. Moreover, the profit and cash flow of the transferor decreased significantly after the reorganisation, while the profit and cash flow of the transferee increased significantly. Notwith - standing that the business reorganisation had valid business reasons and the taxpayer had provided documentation supporting that solely “specific assets and liabilities” had been trans- ferred, the Court of Appeal therefore concluded that “more” had been transferred. The DTA did not agree with the value of the transfer that the taxpayer presented in its tax return and it stated that the taxpayer was aware, or should have been aware, that the taxable amount was too low at the moment the tax return was filed and, therefore, not objectively arguable ( naar objectieve maatstaven pleitbaar ). Together with the size of the correction made by the DTA, the Court of Appeal therefore decided that the taxpayer failed to file the appropriate CIT return ( vereiste aangifte ). Consequently, the (increased) burden of proof shifted to the taxpayer. At first instance, the lower court had eventually called in an expert to resolve this dispute. The Court of Appeal agreed with the DTA’s view that
in making a reasonable estimate in a situation where there is a range of prices, the tax inspector does not necessarily have to take the minimum price at the bottom of the “range” . However, the Court of Appeal found that the expert aimed for the median due to the set of observations he used in his pricing. Insofar the DTA meant that the median or average of the DTA’s and the expert’s valuations should be used, the Court of Appeal disagreed with the DTA. The Court of Appeal, furthermore, ruled that the remunera - tion for the transfer should be grossed up (ie, for 80%), as the taxpayer had not provided any insight into the tax treatment in Switzerland. Also, the Court of Appeal considered the DTA’s suggested projected inflation expectation of 2% for the remaining period to be reasonable, which was in line with the published expectation by the European Central Bank. Significantly influenced by the allocation of the burden of proof to the taxpayer, the Court of Appeal ultimately decided that the taxpayer should have received a sig - nificant remuneration (ie, approximately EUR128 million). Due to the aforementioned adjustments by the Court of Appeal, this value was higher than the value as determined by the expert. This decision illustrates that business restructur - ings continue to be a topic that leads to discus - sions between the DTA and taxpayers. Taxpayers in the Netherlands involved in a substantial busi- ness reorganisation are therefore encouraged to ensure that their transfer pricing documentation provides a consistent and logical explanation for all aspects of the reorganisation, aligning with the OECD Transfer Pricing Guidelines (TPG) and all other information available to the DTA. This ruling serves as a pivotal reminder for mul - tinational enterprises to prepare robust transfer pricing analyses to withstand scrutiny and avoid adverse tax adjustments. Furthermore, alterna - tive dispute resolution mechanisms such as a
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