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1. In your jurisdiction, what are the legal bases for eliminating double taxation further to a transfer pricing reassessment (European Arbitration Convention, mutual agreement procedures provided for by tax treaties)? In addition to the procedures set forth by such tax treaties, is there any other (formal or informal) domestic procedure in your jurisdiction?
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.
2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?
As mentioned, a limited number of Dutch tax treaties contain provision for arbitration. These States are:
3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?
In our experience, the DTA are quite responsive and timely on such matters. The request for a MAP pursuant to Double Tax Treaties (hereinafter “DTTs”) or the EAC will be forwarded to the other State within four weeks. The DTA are however highly dependent on the other State’s cooperation. A domestic procedure will generally be handled within eight weeks if the matter is simple enough, while more complex cases might take longer.
4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?
Taxpayers can file a request for a MAP pursuant to DTTs or the EAC as soon as they have a reasonable suspicion that they are or will be subjected to taxation that is not in accordance with the treaty. In principle, they can even file a request before they receive an assessment. However, bilateral consultations will only commence once the assessment has been irrevocably determined or, in the event of a request for an early mutual agreement procedure, the final assessment has been imposed by the DTA.
The position taken by the government of the Netherlands is that the request of a taxpayer is regarded as having been submitted in time if it is received within three years of either the date of the assessment containing the adjustment or of the date on which justification for the adjustment is given by the foreign State, should this be later. However, if the time limit in the mutual agreement procedure provisions contained in a treaty signed by the Netherlands differs from the general three-year period referred to above, that time limit will be respected.
5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 1 The terms "international procedure to eliminate double taxation" mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty. (your State? the other State concerned? both States?)
In accordance with Article 25 of the OECD Model Tax Convention on which Dutch tax treaties are based, all Dutch tax treaties state that such an application must be submitted to the State of which the taxpayer is a resident.
6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?
The request for a MAP pursuant to DTTs or the EAC must include the following information:
Details about the taxpayer filing the request and the other parties involved, such as names, addresses and tax information numbers;
Information about the relevant facts and circumstances of the issue, including data regarding the association between the enterprises;
The other State(s) to which the request relates;
An explanation why there will be a situation of double taxation;
The tax treaty provisions involved;
The type of procedure to be started;
Information on the tax periods at issue;
Details of the tax authorities involved; and
Information about the tax (re)assessments.
If the request is for an early mutual agreement procedure, the taxpayer must formally request to postpone a decision on the objection filed against the assessment until the MAP pursuant to DTTs or the EAC has been completed.
7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?
The Netherlands’ competent authority will refuse or suspend the request if:
The information and documentation provided are insufficient to assess the request or to conduct a MAP pursuant to DTTs or the EAC and the taxpayer filing the request has not used the opportunity to supplement the information required;
If the tax inspector can demonstrate that the taxpayer has not complied with the applicable administrative obligations;
A request relating to the same issue was previously withdrawn by the taxpayer, and no new facts or altered circumstances have been demonstrated; or,
In the event of recourse to the EAC, if a penalty has been imposed by a judge for serious tax related offenses (e.g. filling an incorrect tax return, drafting an incorrect invoice or supplying incorrect information to the DTA, all with the intention to lower the amount of tax due).
8. Is tax collection suspended during the procedure?
If the Netherlands is the state causing the double taxation, the DTA will, upon the taxpayer’s request, grant a suspension of payment on that part of the tax assessment that relates to the double taxation. It should be noted that in the event of a request for an early mutual agreement procedure, deferral will automatically be granted. The deferral will in principle be granted until both the domestic and the international procedures for resolving the dispute have been completed.
9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?
Any adjustment to the Dutch taxable base is done in accordance with the formal requirements of the General Tax Act. If possible, the adjustments are made per relevant tax year. If this is not possible, the correction is made in the last tax year for which this is possible.
In the Netherlands, transfer pricing reassessments do not give rise to secondary adjustments (where the amount reassessed is deemed distributed to the other party).
In principle, interest will be due (either by or to the taxpayer) following a MAP pursuant to DTTs or the EAC. However, under Dutch legislation it is possible for parties to deviate from the provisions in domestic law while they are consulting on a MAP. In practice, during the course of MAP pursuant to DTTs or the EAC the Netherlands’ will seek to align the interest charged to the taxpayer in one state with that payable to the taxpayer in the other state, meaning that overall no interest is due or received by the taxpayer’s group.
10. In your jurisdiction, is it possible to engage concomitantly an international procedure to to abandon the litigation in order to conclude/finalize the international procedure?
As mentioned, taxpayers have the possibility to file an objection, appeal or appeal in cassation to contest a tax assessment resulting either from an adjustment or from the rejection of an application of a corresponding adjustment. However, a MAP pursuant to DTTs or the EAC with the other treaty partner will normally only start once no further remedies are available in domestic law, even if in practice an early start-up will often be initiated, so a concomitant international procedure is not possible.