The Dutch tax authority has released an unofficial English translation of the Transfer Pricing Decree 2022, which came into effect in July last year.
The Transfer Pricing Decree notes that applying transfer pricing rules is not an exact science and tax officials must be flexible and realistic in their approach when determining transfer prices.
The Transfer Pricing Decree describes the general view on the application of the arm’s length principle as set out in the Decree and the OECD Transfer Pricing Guidelines. The Transfer Pricing Decree acknowledges the OECD Transfer Pricing Guidelines as an internationally accepted interpretation of the arm’s length principle.
The Transfer Pricing Decree states that the transaction as such must be characterised before the price of a specific transaction between associated parties can be determined. “This requires an analysis of the economically relevant characteristics of the transaction,” it states.
According to the Transfer Pricing Decree, it can be useful to examine data covering multiple years when assessing a transaction. “The use of multiple year data can prevent adjustments being applied in a certain year whereas, when several years are considered, the group member in question receives compensation that is in line with the arm’s length principle,” the decree states.
The taxpayer may request a reduction of the adjustment if, as a result of a tax audit, the tax authority proposes an adjustment of a transfer price applied in respect of a certain transaction. However, the tax authority has a discretionary power as to whether or not to grant such requests.
In principle, the taxpayer has the liberty to choose a transfer pricing method, provided that the chosen method leads to an arm’s length result for the specific transaction.
In general, the comparable uncontrolled price (CUP) method is difficult to apply in practice because comparable uncontrolled transactions are hardly available. Hence, the transactional net margin method (TNMM) is often used as transfer pricing method, the Transfer Pricing Decree notes.
The Transfer Pricing Decree provides detailed guidance on secondary adjustments, hard-to-value intangibles, intra-group services, cost contribution arrangements, financial transactions, guarantees, and transfer pricing documentation, among others.