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Review and adjustments

Review and audit

What rules, standards and procedures govern the tax authorities’ review of companies’ compliance with transfer pricing rules? Where does the burden of proof lie in terms of compliance?

Article 52 of the General Tax Act contains a bookkeeping requirement, also applicable to transfer pricing bookkeeping, based on which fiscal rights and obligations and any relevant data of a taxpayer should be evident from its documentation.

The tax return following from it should be complete clearly, positively and without reservation. As a matter of principle, the taxpayer subsequently has the burden of proof for costs and expenses, whereas the tax authorities have the burden of proof for income when correcting a tax return. Where a taxpayer has proper transfer pricing documentation, the burden of proof lies with the tax administration.

Do any rules or procedures govern the conduct of transfer pricing audits by the tax authorities?

The tax authorities can ask for any data and information that can be relevant for the levying of taxes with regard to the taxpayer. This is enacted in Article 47 of the General Tax Act. Its application is broad.

The Transfer Pricing Decree stipulates that the tax authorities should take into account that determining transfer prices is not an exact science, and that on this basis tax administrations are encouraged to be flexible in their approach.

Penalties

What penalties may be imposed for non-compliance with transfer pricing rules?

A possible penalty is a shift of the burden of proof. Before reaching that conclusion, the tax administration must decide that more information is required. The taxpayer will then be given time to produce the relevant documentation. The taxpayer can also file an objection to such a decision.

Where the tax return was incorrectly filed either intentionally or due to gross negligence and this can be demonstrated by the tax authorities, a fine of up to 100% of the tax due may be imposed. The interest calculated on the tax due is 8% for corporate income tax.

Adjustments

What rules and restrictions govern transfer pricing adjustments by the tax authorities?

The tax authorities have three years after the end of the relevant fiscal year – plus any suspension period granted for filing the tax return – to impose an assessment. If the tax inspector discovers any ‘new facts’ (ie, which it could not have reasonably been aware of previously), the period for additional assessments will be five years from the end of the relevant fiscal year plus any suspension period granted.

Challenge

How can parties challenge adjustment decisions by the tax authorities?

According to the General Administrative Law Act, the taxpayer must file an objection within six weeks of the imposition of any corrections or additional assessments.

Mutual agreement procedures

What mutual agreement procedures are available to avoid double taxation arising from transfer pricing adjustments? What rules and restrictions apply?

In the Netherlands, the taxpayer can ask the tax inspector for a corresponding adjustment when corrections in other countries are final. On request, the tax inspector can resolve the issue unilaterally. In general, when applying for a mutual agreement procedure, the taxpayer must file a request within three years after the moment that double taxation can be reasonably expected. The terms can vary per bilateral treaty, so it is important to check the relevant treaty. The taxpayer must send its request for a mutual agreement procedure to the International Tax Policy and Legislation Directorate of the Ministry of Finance, details of which are set out in the Mutual Agreement Procedure Decree.

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