On January 31, 2025, the Dutch tax authorities (DTA) published an official position clarifying the scope of transfer pricing mismatch legislation, specifically with regard to deemed dividend distributions resulting from non-arm’s length transactions between foreign subsidiaries. This clarification is particularly relevant for Dutch parent companies that could have been affected by previous interpretations of the regulations.
Context of the Legislation on Transfer Pricing Mismatches
Dutch transfer pricing legislation seeks to ensure that transactions between related entities are carried out at market value, thus avoiding erosion of the tax base. However, ambiguous wording in the regulations generated uncertainty as to whether a Dutch parent company could face tax repercussions in the event that two of its foreign subsidiaries carried out a transaction not aligned with the arm’s length principle. This led to an interpretation in which the parent company could be considered as the recipient of a deemed dividend, resulting in possible adverse tax adjustments.
Clarification from the Tax Authorities
The recent position of the DTA knowledge group states that such deemed dividend distributions do not constitute an “acquisition” of an asset by the Dutch parent company. As a result, these transactions fall outside the scope of the legislation on transfer pricing mismatches. It is important to note that the positions of the knowledge group represent the official policy of the DTA and are binding on tax inspectors, thus providing greater legal certainty to the companies concerned.
Implications for Companies
This clarification has a significant impact for Dutch parent companies with international structures. This interpretation confirms that such companies will not face adverse tax consequences due to transactions between foreign subsidiaries that do not comply with the arm’s length principle. However, this does not exempt companies from the obligation to continuously review their internal policies and transfer pricing structures to ensure compliance with current tax regulations and avoid adjustments by the tax administration.
Furthermore, this resolution reinforces the importance of having adequate documentation to support the conditions of intercompany transactions, which allows companies to mitigate tax risks and demonstrate that their operations comply with international transfer pricing standards.
Recommendations and Best Practices
Companies with a presence in the Netherlands and multinational structures should:
- Review their transfer pricing agreements to verify their alignment with the arm’s length principle.
- Maintain detailed documentation justifying the conditions of their intercompany transactions.
- Consult with transfer pricing experts to assess the impact of this clarification on their operations.
- Ensure compliance with tax regulations in each jurisdiction where they operate.
Conclusion
The position issued by the Dutch tax authorities brings clarity to a previously ambiguous area of transfer pricing legislation. Companies should keep themselves informed about these official interpretations and consider their implications for tax planning and international operations. This clarification represents an opportunity for Dutch parent companies to optimize their tax structures and reduce the risk of tax adjustments.
Source: Loyens Loeff