1. Borrie & Co Tax Lawyers The Netherlands Maurice Kruidenier
Firm facts:
Located in Rotterdam, Amsterdam, Hilversum
120 staff, 10 partners

2. 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

3. 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 .

4. 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.

5. 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.

6. 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

7. 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

8. 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)

9. Dutch thin cap regulations
Enacted in 1997
Anti abuse legislation against eroding the taxable base for the Corporate Income Tax (CIT)

10. 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.

11. 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,

12. 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%.

13. 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

14. 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.

15. 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.

16. 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