Worldwide transfer pricing reference guide 2014

Netherlands (continued)
Priorities/pricing methods
There is no “best method” rule. Taxpayers are in principle free to choose any OECD transfer pricing method, as long as the method
chosen results in arm’s length pricing for the transaction. Since the 2010 revision of the OECD Guidelines, which establishes the
most appropriate method rule for the selection of the transfer pricing method, there is no longer a hierarchy among the methods.
Nevertheless, the OECD Guidelines do state that where a CUP method and another transfer pricing method can be applied in an equally
reliable manner, the CUP method is to be preferred. Taxpayers are not obligated to test all the methods, though they must substantiate
the method chosen.
Transfer pricing penalties
The lack of transfer pricing documentation will shift the burden of proof regarding the arm’s length nature of the transfer price used to
the taxpayer.
During the parliamentary discussions regarding the introduction of the arm’s length principle and transfer pricing documentation
requirements (i.e., Article 8b) into the Dutch Corporate Income Tax Act, a question was raised regarding the Dutch policy in connection
with the levy of administrative penalties in case of a transfer price adjustment. The Dutch Under-Minister of Finance declared that in case
of transfer price adjustments, the levy of an administrative penalty under the circumstance of an incorrect income tax return should be
limited to cases in which it is plausible that the agreed transfer price is not regarded as arm’s length as a result of a pure intentional act.
Therefore, an administrative penalty will not be imposed, even in the event of gross negligence or conditional intentional act under this
policy announcement.
In case of a pure intentional act as set forth above, the tax may be increased with a maximum penalty of 100% of the (additional) tax due,
plus interest.
Penalty relief
It is unlikely that there will be transfer pricing penalties if there is proper transfer pricing documentation prepared by the taxpayer
and the documentation at hand adequately substantiates the arm’s length nature of the intercompany transactions undertaken by the
taxpayer.
Documentation requirements
Taxpayers are obliged to prepare documentation that describes how the transfer prices have been established and which must be
included in the accounting records. Furthermore, the documentation needs to include sufficient information that would enable the
tax authority to evaluate the arm’s length nature of the transfer prices applied between associated enterprises. The parliamentary
explanations to Article 8b do not provide an exhaustive list of information that should be documented.
Transfer pricing documentation could include:
• Information about the associated enterprises involved
• Information on the intercompany transactions between these associated enterprises
• A comparability analysis, describing the five comparability factors as set forth in Chapter I of the OECD Guidelines
• A substantiation of the choice of the transfer pricing method applied
• A substantiation of the transfer price charged
• Other documents, such as management accounts, budgets and minutes of shareholder and board meetings
Documentation deadlines
Documentation is generally expected to be complete when the taxpayer enters into a transaction, according to the Dutch Ministry of
Finance. However, if the transfer pricing documentation is not available upon the request of the tax authority, taxpayers are granted
four weeks to prepare the documentation. This period may be extended up to three months, depending on the complexity of the
intercompany transactions in which the taxpayer is engaged.
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