Netherlands: Proposal to address mismatches in non-arm’s length transfer pricing

Several aspects of the bill differ from the consultation proposal—such as the transitional rules.

Several aspects of the bill differ from the consultation proposal.

A bill to address mismatches in the application of the arm’s length principle was presented 21 September 2021 (Budget Day) to the lower house of Parliament.

The proposal had previously been submitted for an internet consultation. However, several aspects of the final bill differ from the consultation proposal—such as the transitional rules.

The measures, as proposed, would apply for the first time to financial years beginning on or after 1 January 2022.

The bill is aimed at informal capital arrangements and deemed dividend arrangements. Under the bill, downward adjustments of the Dutch profit for tax purposes on the basis of the arm’s length principle in transactions between associated (related) entities would, in principle, no longer be taken into account. However, the downward adjustment could be taken into account insofar as the taxpayer can convincingly demonstrate that a corresponding upward adjustment is subject to profit tax at the other (associated) entity with which the legal relationship was concluded.

If the associated entity is a hybrid entity, then it would be important that the underlying participant be taxed on the upward adjustment.

There is also a measure for assets that are acquired from an associated entity and the agreed fee is less than the arm's length price and the difference is not taxed at the transferor. For assets acquired from an associated entity on or after 1 July 2019, any future depreciation/amortization would be limited (as of financial years commencing on or after 1 January 2022).

A deposit-in-kind of an asset would also be affected by the proposal.

However, a situation when an asset is purchased for the correct arm’s length price, but is not taxed at the vendor, would not be subject to the proposal.


Read a September 2021 report [PDF 461 KB] prepared by the KPMG member firm in the Netherlands

 

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