Netherlands

Market overview

Before the BEPS project, the Netherlands was one of the European countries which had no formal standard for TP documentation. So, the introduction of formal guidelines for transfer pricing, such as master file, local file and country-by-country reporting (CbCR), has been a major change for the Dutch market.

"We used to have a more principle-based for TP documentation. Now we are moving towards a more rule-based system, where it's specified what exactly is to be included in these documents," said Frank Schwarte, a founding partner of T/A Economics. "Also, it's even more about the economic reality of the transactions now."

Predictably, there has been a rise in demand for compliance and documentation advice. But this wasn't the only effect. Practitioners have seen a dramatic increase in the amount of disputes given the new level of scrutiny from the tax authorities. More and more, firms are advising clients on mutual agreement procedures (MAPs).

Although the Netherlands has taken on board many of the BEPS recommendations, the Dutch government voiced several reservations about the multilateral instrument (MLI) before it signed the agreement in June 2017. Generally, the Dutch authorities fear that the economy could lose out if tax policy is increasingly harmonised around the world. So the Dutch government signed the MLI and submitted its reservations to the OECD.

These reservations include the 'savings clause', the breaking up of contracts which may allow businesses to avoid a permanent establishment and mandatory binding tax arbitration (MBTA). Under the clause, states reserve the right to tax their citizens according to their own national rules. The Netherlands has signed up for the MBTA and listed 82 tax treaties it designates as covered tax agreements (CTA).

At the same time, there has been a shift towards on-shoring intellectual property (IP) assets from low-tax jurisdictions, such as the Cayman Islands and the British Virgin Islands. Many multinational companies fear the fallout of increased transparency in tax havens could hit their balance sheets or tarnish their reputations, especially since the Panama Papers scandal. Some tax and TP specialists believe that the Netherlands could position itself to benefit from the increase in on-shoring.

Although the introduction of formal TP rules has been significant, the Dutch authorities are determined to maintain a business-friendly environment to attract foreign investors. With the UK set to leave the EU, the Dutch economy could stand to attract businesses.

On the other hand, the UK's withdrawal poses a great deal of uncertainty for the EU, and open economies such as the Netherlands may lose out in the instability. Historically, the Dutch economy has attracted a lot of multinational investment.

In particular, US investors have traditionally seen the Netherlands as one of the best gateways into Europe. This is one of the reasons why the Netherlands is vulnerable to changes driven by international trends. For instance, Dutch firms are considering the potential consequences of President Trump's proposed cuts to US corporation tax.

"Many firms in the Netherlands are waiting for Mr. Trump to move and do something for his proposals and the big issue is the constraints of the budget," Daan Arends, partner at DLA Piper. "We're expecting something new in the course of the year."


Tax authorities

Ministerie van Financiën
Korte Voorhout 7
Postbus 20201
2500 EE Den Haag
Tel: +31 70 342 80 00
Website: www.minfin.nl


Tax rates at a glance

(As of July 2017)

Corporate income tax 20/25% (a)
Capital gains 0%
Branch tax 25%
 
Withholding tax (b)
Dividends 15%
Interest 0%
Royalties from patents and licenses 0%
 
Net operating losses (years)
Carryback 1
Carryforwards 9

  1. If taxable profits are less than €200,000 ($258,000), the lower 20% rate applies
  2. The 15% domestic dividend withholding tax rate may be decreased under application of bilateral tax treaties and the EU Parent Subsidiary Directive

Source: Taxand Netherlands and Deloitte


Firm contact details

DLA Piper
KPMG Meijburg
Loyens & Loeff
T/A Economics
WTS World Tax Service B.V.