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Transfer Pricing News: Dutch State secretary of Finance on the arm's length principle

Recently the Dutch State secretary of Finance reacted through a public letter on the statement ‘The OECD’s Arms Length Principle, which is based on comparable market prices that do not really correspond to reality, provides several loopholes through which MNCs avoid tax’. This statement was included in a report of Oxfam titled ‘Business among Friends – Why corporate dodgers are not yet losing sleep over global reform’. Members of the Socialist Party issued questions that arose from this report.

The State secretary of Finance said that he disagreed with the statement that the arm’s length principle leads to tax avoidance, although he does agree with the proposition that the arm’s length principle does not always work properly. The State secretary of Finance furthermore provided insight into his vision for improvement of the Transfer Pricing guidelines. In his view, the improvement of the Transfer Pricing guidelines should be aimed at taxing profits where the economic activities that generate these profits take place. He points out that in particular the movement of the legal ownership of mobile assets (such as receivables, licenses and intangibles), without any associated economic activities, provide MNCs with opportunities to shift profits (artificially) to other countries. Improved Guidelines should prevent this kind of practice. The State secretary of Finance furthermore indicated that action points 8, 9 and 10 of the Action Plan on Base Erosion and Profit Shifting are very important with respect to the aforementioned, and that the Dutch ministry of Finance is very active in seeking improvements on these points.

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