Global Tax Alert (News from Transfer Pricing) | 6 January 2016

The Netherlands passes bill on supplementary transfer pricing documentation requirements in line with BEPS Action 13

Executive summary

On 22 December 2015, the Dutch Parliament formally approved the Other Fiscal Measures Bill, which includes supplementary transfer pricing documentation requirements in line with the three-tiered approach of Action 13 of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project.1,2 In addition, a Ministerial Regulation providing further rules regarding the form and content of the country-by-country (CbC) report, master file and local file has been published in the Government Gazette on 30 December 2015 (Ministerial Regulation). The supplementary transfer pricing documentation requirements are applicable for qualifying multinational enterprises for fiscal years starting on or after 1 January 2016.

Detailed discussion

Implementation of the OECD documentation standards

With the supplementary transfer pricing (TP) documentation requirements, codified in articles 29b – 29h of the Dutch Corporate Income Tax Act 1969 (CITA 1969), The Netherlands implements the OECD’s three-tiered approach for transfer pricing documentation consisting of the CbC report, the master file, and the local file.

As a result, qualifying multinational enterprises should satisfy the supplementary TP documentation requirements for fiscal years starting on or after 1 January 2016.

The requirement to prepare a master file and local file will apply to Dutch tax resident entities of a multinational enterprise (MNE) group that has a consolidated group turnover equal to or exceeding €50 million in the fiscal year preceding the year for which the tax return applies. These files should be included in the records of the taxpayer within the term set for submitting its corporate income tax return.3 For smaller groups, the already existing Dutch TP documentation requirements under Article 8b(3) CITA 1969 will remain applicable in order to avoid imposing burdensome administrative requirements for small and medium-sized enterprises.

The requirement to prepare a CbC report is applicable to Dutch tax resident entities, members of an MNE group, with a consolidated group turnover equal to or exceeding €750 million in the fiscal year preceding the fiscal year to which the CbC report applies. The default rule is that if the ultimate parent company of a group with a consolidated group turnover equal to or exceeding €750 million is a Dutch tax resident, the entity must provide a CbC report to the tax inspector within 12 months of the last day of the fiscal year (Article 29c, paragraph 1). A Dutch tax resident entity that is not the ultimate parent company of a qualifying multinational would need to file a CbC report in the Netherlands when:

  • The country in which the ultimate parent entity is a tax resident has not established CbC reporting obligations
  • The country in which the ultimate parent is a tax resident does not have a signed agreement in place for automatic information exchange with the Netherlands on CbC reports—at the latest, 12 months after the last day of the fiscal year

Or

  • The inspector has informed the group entity that the country in which the ultimate parent company is a tax resident has systematically failed to comply

Provided certain conditions are met, a group entity is not required to provide the tax inspector with a CbC report within 12 months after the last day of the fiscal year of the MNE group if a “surrogate parent entity”4 provides the CbC report to the tax administration of the country in which it is tax resident.

The supplementary TP documentation requirements are in line with the draft law as proposed by the Dutch State Secretary of Finance on 15 September 2015. As such, a specific penalty regime is applicable for non-compliance with the CbC report requirements.5

Ministerial Regulation

Together with the enactment of the bill on supplementary transfer pricing documentation requirements, the Dutch State Secretary of Finance published a Ministerial Regulation in the Government Gazette on 30 December 2015 that outlines further rules regarding the form and content of the master file, local file and CbC report,6 which are almost identical to the templates provided in the OECD BEPS Action 13 report. It is reiterated that the CbC report, master file and local file can be prepared in the Dutch or English language. The CbC report should be prepared in XML format.

Increased audit activity

To effectively enforce the increased documentation requirements, the Dutch Ministry of Finance announced expansion of the Coordination Group on Transfer Pricing by 17 full-time equivalent employees.

Implications

Dutch tax resident entities that are part of an MNE group and meet the financial thresholds will need to comply with supplementary TP documentation requirements for fiscal years starting on or after 1 January 2016. These supplementary requirements are in line with the OECD three-tiered approach consisting of the master file, the local file and the CbC report.

Multinational enterprises need to evaluate whether the new documentation requirements will apply to them and need to reassess their documentation strategy to ensure they will meet the documentation requirements (including deadlines) for the master file, local file and CbC report under the new format.

The increased transparency and the increase in audit capacity of the Dutch Tax Authorities, in combination with the changes in transfer pricing rules as a result of BEPS Action 8-10, will most likely increase the attention to transfer pricing issues. To be prepared for this, multinational enterprises should review their transfer pricing policies, and identify areas for improvement and mitigation of transfer pricing risks and reduction of costs related to compliance, audit and controversy. Taxpayers should make sure their transfer pricing policies are properly documented and properly implemented.

Endnotes

1. The House of Representatives and Senate formally approved the Other Fiscal Measures Bill– which includes the draft legislation for supplementary documentation requirements - on respectively 18 November 2015 and 22 December 2015. The Other Fiscal Measures have been published in the Law Gazette 540 (Law of 23 December 2015 amending certain tax laws and any other laws) (Other Fiscal Measures in 2016) on 30 December 2015.

2. See the OECD BEPS Action 13 report, Guidance on Transfer Pricing Documentation and Country-by-Country Reporting, dated 16 September 2014. Refer also to EY Global Tax Alert, OECD releases report under BEPS Action 13 on Transfer Pricing Documentation and Country-by-Country Reporting, dated 23 September 2014.

3. The Dutch tax administration can request these files from the local Dutch entity.

4. A group entity of an MNE group that has been designated by the MNE group as the substitute for the ultimate parent entity to file the CbC report on behalf of the MNE group in the country in which it is tax resident.

5. For more details on the supplementary transfer pricing documentation requirements codified in Articles 29b – 29h CITA 1969, see EY Global Tax Alert, The Netherlands releases draft law implementing new transfer pricing documentation requirements in line with BEPS Action 13, dated 16 September 2015.

6. Regulation of the Minister of Finance dated 30 December 2015, no. DB2015/462m, on rules for elaboration of additional documentation requirements for multinational companies.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Transfer Pricing, The Netherlands
  • Ronald van den Brekel
    +31 88 4079016
    ronald.van.den.brekel@nl.ey.com
  • Danny Oosterhoff
    +31 88 4071007
    danny.oosterhoff@nl.ey.com
  • Jeroen Geevers
    +31 88 4078532
    jeroen.geevers@nl.ey.com
  • Clive Jie-A-Joen
    +31 88 4070807
    clive.jie-a-joen@nl.ey.com
  • Bernard Damsma
    +31 88 4078534
    bernard.damsma@nl.ey.com
Ernst & Young LLP, Belgium-Netherlands Tax Desk, New York
  • Dirk Jan Sloof
    +1 212 773 1363
    dirkjan.sloof@ey.com
Ernst & Young LLP, Belgium-Netherlands Tax Desk, Chicago
  • Erwin Sieders
    +1 312 879 2338
    erwin.sieders@ey.com
Ernst & Young LLP, Belgium-Netherlands Tax Desk, Beijing
  • Yee Man Tang
    +86 10 5815 3765
    yeeman.tang@cn.ey.com
Ernst & Young LLP, Belgium-Netherlands Tax Desk, Desk Hong Kong
  • Bas Leenders
    +85 22 846 9018
    bas.leenders@hk.ey.com
Ernst & Young LLP, Belgium-Netherlands Tax Desk, Singapore
  • Barbara Voskamp
    +65 630 98063
    barbara.voskamp@sg.ey.com
Ernst & Young LLP, Belgium-Netherlands Tax Desk, Sydney
  • Yvette Gorter-Leeuwerik
    +61 292 485 820
    yvette.gorter@au.ey.com
Ernst & Young LLP, Belgium-Netherlands Tax Desk, London
  • Jelger Buitelaar
    +44 20 795 15648
    jbuitelaar@uk.ey.com

EYG no.CM6119