The European Commission today reported it has opened an in-depth investigation to examine whether tax rulings granted by the Netherlands to a multinational corporation provide “an unfair advantage over its competitors” in breach of EU state aid rules. The tax rulings endorsed a method to calculate the amount of royalty to be paid by two Dutch companies for the use of intellectual property.
As reported in today’s EC release, the formal investigation concerns the tax treatment in the Netherlands of two taxpayer group companies based in the Netherlands.
The EC’s concern is that “the royalty payments endorsed by the rulings may not reflect economic reality. They appear to be higher than what independent companies negotiating on market terms would have agreed between themselves in accordance with the arm's length principle.” A preliminary analysis of the companies' activities found that:
The EC’s investigation will focus on whether the Netherlands' tax rulings endorsing these royalty payments may have unduly reduced the taxable base in the Netherlands of the two Dutch operating companies since 2006 and whether the Netherlands may have granted a selective advantage to the taxpayer group by allowing it to pay less tax than other stand-alone or group companies whose transactions are priced in accordance with market terms. If confirmed, this would amount to illegal state aid.
The opening of an in-depth investigation affords the Netherlands and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.
Read a January 2019 report prepared by KPMG’s EU Tax Centre
© 2019 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.