Compliance with transfer pricing regulations is a crucial aspect of corporate tax compliance for enterprises operating in the Netherlands. The Dutch tax system follows internationally recognized principles to prevent profit shifting and ensure fair taxation. Non-compliance can lead to hefty fines, explicit disclosure of non-compliance in your tax return and lengthy disputes with Tax Authorities. Therefore, it is important to stay in control of your transfer pricing obligations.
Who is subject to transfer pricing principles?
The Dutch transfer pricing (TP) regulations are primarily governed by Article 8b of the Dutch Corporate Income Tax Act 1969 (CITA). This legislation mandates that associated enterprises conduct business at arm’s length, ensuring transactions reflect fair market values as if they were conducted between independent third parties.
All taxpayers are required to maintain TP documentation to substantiate compliance with these principles.
Additional documentation for taxpayers with high revenue
The extent of TP documentation obligations depends on a company’s consolidated annual revenue. Businesses with less than EUR 50 million in revenue must meet general TP documentation requirements, meaning they must keep records of how their pricing policies are determined and why these are considered to be at arm’s length, but there is no prescribed format. Companies within a multinational group earning above EUR 50 million must maintain both a Master File and a Local File, ensuring these documents are available when filing their tax return. For the largest enterprises, those with over EUR 750 million in revenue, a Country-by-Country Report (CbCR) and CbC Notification must also be filed with the Dutch Tax Authorities in addition to maintaining a Master File and Local File.
What transaction need to be documented?
All transactions between associated enterprises, whether domestic or cross-border, must be documented without exception. The definition of associated enterprises includes entities where one directly or indirectly participates in the management, control, or capital of another. This also extends to transactions between a permanent establishment (PE) and its head office, following the OECD’s functionally separate entity approach. Dutch taxpayers may voluntarily apply the EU Transfer Pricing Documentation (EU TPD) framework, though the Dutch 2018 and 2022 TP Decrees emphasize compliance with OECD standards. Benchmarking studies are required to substantiate TP policies. Tax authorities may accept regional benchmarks if proportional to the administrative burden. Simplified TP treatment is available for low value-adding intragroup services not related to primary business activities, where a 5% markup on costs is permissible.
When does TP documentation needs to be available?
TP documentation must be available at the time of the transaction and made available upon request of the tax authorities. In practice, tax authorities may grant a four-week extension, extendable to three months for complex documentation. Master and Local Files must be ready when filing the corporate tax return for the respective fiscal year. From the years 2023 and onwards, taxpayers must mandatorily disclose if TP Documentation is available when filing their Corporate Income Tax Returns. Non-compliance with TP documentation requirements including a CbC Report and CbC Notification can result in fines. In severe situations, imprisonment—in cases of intentional non-compliance—may even be imposed.
Failure to provide complete documentation may also shift the burden of proof onto the taxpayer. The shift of burden of proof does not prevent them from initiating a Mutual Agreement Procedure (MAP) under tax treaties or the EU Arbitration Convention.
In practice, we have noticed a trend of increasing vigilance of Dutch Tax Authorities with adherence to TP regulations. An overview of the required transfer pricing documentation is listed below.
| Entities belonging to a group with consolidated turnover: | EUR <50 mio | EUR >50 mio | EUR >750 mio | Frequency |
|---|---|---|---|---|
| Transfer pricing reportage | ✓ | One every few years provided that business model doesn’t change | ||
| Local file | ✓ | ✓ | Yearly | |
| Master file | ✓ | ✓ | Yearly, prepared centrally | |
| CbC report | ✓ | Yearly, prepared centrally | ||
| CbC notification | ✓ | Yearly |
Country-by-country reporting and non-compliance fines
Country-by-Country Reporting (CbCR) obligations have been in place since 2016, requiring submission within 12 months after the fiscal year-end. Parent entities or designated multinational group companies with annual revenue of at least EUR 750 million must file a CbC Report, while other Dutch group entities must notify tax authorities of the filing entity (the so-called ‘CbC Notification’). Dutch CbCR requirements stem from OECD BEPS Action 13 standards. Non-compliance carries fines up to EUR 25,750, with severe violations leading to penalties of up to EUR 1,030,000 (2025). Most Dutch tax treaties enable the automatic exchange of CbCR data, supported by the Netherlands’ participation in the Multilateral Competent Authority Agreement.
Mandatory country-by-country reporting for large multinational companies
A recent development in this area is EU Public Country-by-Country Reporting, effective from June 22, 2024. Large multinationals with revenue over EUR 750 million must report country-specific tax data. This applies if they operate in the EU for two consecutive years. If their financial year matches the calendar year, the first report will cover 2025. It must be published by 31 December 2026 on the company’s website and in the trade register.
The Dutch TP framework is rigorous yet flexible, aligning with OECD guidelines while ensuring compliance efforts remain proportional. Transfer pricing is an art form and not a science. To avoid scrutiny, taxpayers should proactively maintain thorough documentation and, when necessary, seek advance agreements with tax authorities to confirm compliance.
