The Secretary of State for Finance wants to amend the Dutch ruling practice per January 1st, 2019 he wrote in a letter on February 18th to the House of Representatives. This follows an investigation to rulings with an international character. The conclusions from the investigations were in short that in some cases formal procedures were not followed, which potentially could have led to misinterpreting of legislation to specific cases. Therefore the Secretary of State wants to further centralize the ruling practice in order to ensure quality and consistent policy. He also considers strengthening the Dutch substance requirements in order to only give security in advance to real business activities. In this blog we will describe the current Advance Pricing Agreement (hereinafter referred to as: “APA”) practice in the Netherlands and we will analyze the impact of the letter referred to. The outcome of the investigations were used by (mainly left wing) political parties to challenge the Dutch ruling regime as if it is incompatible with the international standards, for which reason it is good to summarize the plain facts on APA’s in the Netherlands.
In the Netherlands there is (already) a centralized APA-team within the tax authorities which handles APA requests, which enterprises can request in order to obtain certainty in advance about the at arm’s length character of intra group transactions. The APA-team has the sole mandate to conclude rulings on pricing of intra group transactions for future years. There is also a coordination group on transfer pricing within the tax authorities whose task is to ensure consistent transfer pricing policy in practice for past years to date. This coordination group operates decentralized in order to ensure consistent execution of transfer pricing policy at regional tax offices. Under the current APA practice the following counts. The tax authorities are available to agree on a specific case management plan with any taxpayer for entering into an APA. In this bespoke plan the process as well as the expected duration of the process can be discussed. The tax authorities endeavor to minimize uncertainty about the duration of the process. In practice a ruling can be concluded within 6 to 8 weeks when the matter is not to complex. Though relatively fast, the European Commission also stated that the Netherlands usually works with a thorough analysis of the file. A pre-filing meeting can be arranged in order to ascertain that it is clear for the company what information will be expected by the tax authorities and what elements are of special interest for concluding the agreement. It is possible to obtain certainty in the form of a unilateral APA and to initiate a bilateral or a multilateral APA request. The scope of the request can be all transfer pricing issues of a specific taxpayer, a specific transaction or type of transactions. Nonetheless the tax authorities will not per se handle the request on an isolated basis. The pricing of intra group transactions can be taken into account to a broader extent than the initial request. The duration of the agreement can be based on a reasonable request of the taxpayer. In the scope of the agreement also past transactions can be included. In that case the previous and the current facts and circumstances must be comparable, or at least to an extent that reasonable accurate adjustments can be performed in order to take away any relevant differences.
For entering into an APA one needs to provide the tax authorities with a substantiation of the at arm’s length character of the intra group transactions relating to the entity or the transaction(s) involved. One also needs to show the ultimate beneficial owner in order to comply with the Anti-Money Laundering Directive of the EU. A template containing the basic elements of the ruling must be provided for international ruling exchange purposes. The documentation is not prescribed by regulation for groups with a consolidated revenue of under € 50 million per year. For groups with a consolidated revenue of over € 50 million the BEPS compliant Local File and Master File documentation requirements are in effect.
The APA practice in short gives security in advance about pricing of intra group transactions. The APA team hereby follows the OECD interpretation of the at arm’s length principle. This is not something that is expected to change. The Secretary of State underpins the importance of the APA practice for the Dutch business climate in his letter and seems in favor of strengthening the centralized APA team. It is not yet clear what the changes will be starting January 1st 2019. We do not expect them to be significant for the APA practice although.