The Dutch transfer pricing rules are laid down in article 8b of the Dutch Corporate Income Tax Act (CITA). According to article 8b CITA, the prices agreed among related parties can be corrected if these prices differ from the prices that would have been agreed among non-related parties. A related party is defined as company or individual person managing, supervising or participating in the capital of another company that has significant influence over the determination of prices of the transaction between the parties.
There are two ways in which the Netherlands can eliminate double taxation arising as a result of transfer pricing adjustments in another country following a request of the taxpayer:
- The Dutch tax assessment can be unilaterally adjusted without consulting the treaty partner
A taxpayer can submit a request for an adjustment to the Dutch tax authorities (hereinafter “DTA”) who will then decide, on the basis of Dutch tax legislation and the applicable tax treaty, whether the Netherlands will unilaterally renounce (part of) its tax claim. Depending on the stage of the tax (re)assessment, such a request may be filed as a request for adjustment of the taxpayer’s tax return or as an objection to the (re)assessment.
All requests have to be sent to the DTA’s Coordination Group on Transfer Pricing for binding advice. If the DTA decides that elimination of double taxation is not possible by reducing the assessment, the taxpayer can still seek recourse to the legal domestic remedies available. Under Dutch law, the taxpayer has the possibility to file an objection, appeal or appeal in cassation to contest a tax assessment.
- The double taxation can be eliminated after consultations with the other tax authority, either by adjustment of the Dutch assessment or otherwise
In addition to the domestic remedies as mentioned above, it is possible to request a mutual agreement procedure or arbitration procedure. However, a mutual agreement or arbitration procedure with the other treaty partner will normally only commence once no further remedies are available under domestic law. However, the DTA offer the opportunity to request early consultations with treaty partners on a mutual agreement or arbitration procedure, i.e. before the taxpayer exhausts the remedies available in domestic law. In the vast majority of cases, initiating an ‘early start-up’ will eliminate double taxation at a much earlier stage.
- Mutual Agreement procedures (hereinafter “MAP”)
All of the treaties for the avoidance of double taxation that the Netherlands has entered into contain a clause that is comparable to Article 25 (the mutual agreement procedure) of the OECD Model Tax Convention. Taxpayers can request a mutual agreement procedure if the acts of one or two States results in double taxation. The Dutch State Secretary of Finance has published decree’s (IFZ2008/248M of 29 September 2008 an IFZ2001/295 of 30 March 2001) that provide guidelines on mutual agreement procedures. As the mutual agreement procedure is a process between States, the taxpayer is officially not involved in the communication between the two States. However, the DTA will try to inform the taxpayer adequately. Note that in most Dutch tax treaties, the mutual agreement procedure does not compel competent authorities to actually reach an agreement and resolve the tax dispute.
A limited number of Dutch tax treaties contain provision for arbitration. In these cases, the competent authorities can agree to seek arbitration voluntarily. If the authorities agree to arbitration, the arbitration committee’s decision will in almost all cases be binding, both on the competent authorities and on the taxpayer(s) involved.
In addition to the abovementioned mutual agreement procedure and treaty arbitrations procedures, the European Arbitration Convention (hereinafter “EAC”) provides an elimination of double taxation by agreement between the contracting States. If necessary, the opinion of an independent advisory body can be requested. Unlike the mutual agreement procedures and tax treaties provisions for arbitration, the Arbitration Convention obliges the participating States to eliminate double taxation.