Published byGeorgia Moore Modified over 7 years ago
Borrie & Co Tax Lawyers The Netherlands Maurice Kruidenier
Firm facts: Located in Rotterdam, Amsterdam, Hilversum 120 staff, 10 partners
What is Transfer Pricing
What are transfer prices? Transfer prices are prices charged in transactions between related parties (in multinational enterprises) Transfer prices can be: Prices for goods Prices for services including Royalties for intellectual property (patents, copyrights, trademarks, other know-how) Interest on related-party loans Transfer pricing is really about the allocation of (global) profits between entities residing in different jurisdictions
Why is it important . 1994 or earlier 1995 1996 1997 1998 1999 2000
2001 2002 2003 2004 2005 2006 2007 Australia Czech Republic France Germany Indonesia Italy Poland Japan Singapore Slovak Republic United States Sweden Latvia OECD Philippines South Africa Austria Korea (Republic of) Brazil Chile Mexico New Zealand Ukraine Argentina Canada China (People’s Republic of) Denmark Russia United Kingdom Estonia Venezuela India Peru Serbia Luxembourg Netherlands Montenegro Portugal Thailand Hungary Malaysia Belgium Colombia Lithuania Romania Taiwan (Republic of China) Ecuador Egypt Slovenia Israel Spain Sri Lanka Vietnam Finland Greece Hong Kong Ireland (Republic of) Switzerland Turkey .
General Consensus Article 9 of the OECD Model Tax Convention:
The arm’s length principle [Where] conditions are made or imposed between the two [associated] enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.
Comparability The arm’s length principle requires a comparison
of the conditions in a controlled transaction with the conditions in transactions between independent enterprises. Not merely a comparison of prices, but all economically relevant characteristics of the situations being compared must be sufficiently comparable.
Example Company A Company B Taxable profits 1.000 CIT 25% 250
Net profit If the Company A can restructure its operations and subsequently shift 50% of its profits to a related Company B in a low tax jurisdiction (for example 10%) the following tax can be saved: Taxable profits CIT 25% Net profit Company B Taxable profits CIT10% Net profit Tax savings would amount to ( ) = 75
Example (2) Result: A decrease in profit potential of Company A and
A decrease in the taxable base in the Netherlands Likely consequence: (Dutch) tax authorities will scrutinize the transfer of profits to Company B on the basis of the arm’s length principle Want to understand whether the intercompany transaction and subsequent remuneration for Company A and Company B is at arm’s length
Contact Details Borrie & Co Tax Lawyers
Transfer Pricing and Tax Efficient Supply Chain Management Maarten Borrie Jan Leentvaarlaan 1 3065 DC Rotterdam The Netherlands PO Box 8565 3009 AN Rotterdam Tel (0) Mob (0)
Dutch thin cap regulations
Enacted in 1997 Anti abuse legislation against eroding the taxable base for the Corporate Income Tax (CIT)
Before 1997 example CIT base erosion
Netherlands Antilles NA Interest taxed at 2,4%-3% Loan Interest NL Netherlands Interest deducted at 40% (loan returned as dividend) NA N.V. NL B.V.
CIT base erosion legislation (10a)
For a company subject to Dutch CIT, interests and costs of a debt paid to an affiliated person, are not deductible, insofar the debt is connected to: a distribution of profits or a refund of capital, the acquisition or expansion of a share interest in an affiliated corporation,
CIT base erosion legislation (10a)
Connected to: Very broad meaning, direct or indirect, for past and future debt! Affiliated: A corporation in which an 1/3 share interest is held; A corporation or natural person which holds an 1/3 share interest in the debtor. Escapes Debt was decisively incurred for commercial reasons; or The interest is subject to an effective tax rate of 10%.
Example NA N.V. NA NL NL B.V. NL B.V. Interest subject to 2,4-3% tax
Interest, not deductible! 100% 100% NL Loan NL B.V. NL B.V. Purchase Participation 100% of the shares
Thin Capitalization (10d)
Interest paid on a debt to an affiliated corporation is not deductible if: The debtor is joined in a group. The interest paid to affiliated corporations exceeds the received interest from affiliated corporations. The debt vs equity ratio exceeds 3:1.
Thin capitalization 10d CIT
Group: corporations that are economically and organizationally linked. 3:1 debt vs equity ratio (safe harbour): Equity is always considered to be at least € k. Surplus is not deductible.
Example Assets 10 mio Equity 1 mio Group loan 9 mio
Safe harbor ratio (3:1) Calculation non deductible interest: (9 mio – 3*1 mio) -0,5 mio = 5,5 mio x 5%= 275k
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