Presentation on theme: "Borrie & Co Tax Lawyers The Netherlands Maurice Kruidenier"— Presentation transcript:
1 Borrie & Co Tax Lawyers The Netherlands Maurice Kruidenier Firm facts:Located in Rotterdam, Amsterdam, Hilversum120 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 goodsPrices for services includingRoyalties for intellectual property (patents, copyrights, trademarks, other know-how)Interest on related-party loansTransfer 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 2001200220032004200520062007AustraliaCzech RepublicFranceGermanyIndonesiaItalyPolandJapanSingaporeSlovak RepublicUnited StatesSwedenLatviaOECDPhilippinesSouth AfricaAustriaKorea (Republic of)BrazilChileMexicoNew ZealandUkraineArgentinaCanadaChina (People’sRepublic of)DenmarkRussiaUnited KingdomEstoniaVenezuelaIndiaPeruSerbiaLuxembourgNetherlandsMontenegroPortugalThailandHungaryMalaysiaBelgiumColombiaLithuaniaRomaniaTaiwan (Republicof China)EcuadorEgyptSloveniaIsraelSpainSri LankaVietnamFinlandGreeceHong KongIreland (Republic of)SwitzerlandTurkey.
4 General Consensus Article 9 of the OECD Model Tax Convention: The arm’s length principle[Where] conditions are made or imposed between thetwo [associated] enterprises in their commercial orfinancial relations which differ from those whichwould be made between independent enterprises, thenany profits which would, but for those conditions,have accrued to one of the enterprises, but, by reasonof those conditions, have not so accrued, may beincluded in the profits of that enterprise and taxedaccordingly.
5 Comparability The arm’s length principle requires a comparison of the conditions ina controlled transaction withthe conditions intransactions 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 profitIf 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 profitsCIT 25%Net profitCompany BTaxable profitsCIT10%Net profitTax 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 NetherlandsLikely consequence:(Dutch) tax authorities will scrutinize the transfer of profits to Company B on the basis of the arm’s length principleWant 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 ManagementMaarten BorrieJan Leentvaarlaan 13065 DC RotterdamThe NetherlandsPO Box 85653009 AN RotterdamTel (0)Mob (0)
9 Dutch thin cap regulations Enacted in 1997Anti abuse legislation against eroding the taxable base for the Corporate Income Tax (CIT)
10 Before 1997 example CIT base erosion Netherlands Antilles NAInterest taxed at 2,4%-3%LoanInterest NLNetherlandsInterest 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.EscapesDebt was decisively incurred for commercial reasons;orThe 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%NLLoanNL B.V.NL B.V.PurchaseParticipation100% 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