Transfer pricing

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The so-called arm’s length principle has traditionally been considered part of the Dutch concept of taxable profits. On January 1, 2002, the arm´s length principle has also been incorporated in the Dutch corporate income tax Act.

This was preceded in March 2001 by detailed transfer pricing regulations, designed to supplement the OECD transfer pricing guidelines.

As a consequence, taxable profits from related party transactions may be adjusted to conform to profits that would have been realized between independent parties. To this end, the term “related parties” needs to be explained broadly and does not only refer to a direct shareholders link. For example, if a company performs board or supervisory activities towards another company, both companies may be regarded as related in this respect.
In general, the following documentation should be maintained:
■ summary of the relevant intercompany transactions.
■ Functional analysis: description of functions undertaken, risks assumed and assets owned by each party to the transaction.
■ Description and rationale of the transfer pricing methodology and margins.
■ Evidence that the methodology has resulted in an arm’s length outcome.
■ Industry analysis: review of industry, competitors, economic circumstances, etc.
■ Transfer pricing policy document.
■ Intercompany agreements.

Please note that an adjustment of profits may not only have Dutch corporate income tax consequences, but may also lead to secondary adjustments, such as the recognition of a deemed dividend distribution. This deemed distribution could result in a consequent liability to dividend withholding tax.

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