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INTRODUCTION
Tax and transfer pricing (TP) are becoming areas of greater focus from different angles. Not only they can affect the bottom line, but they can also affect the organisation’s reputation and governance. Thus, it has become paramount to consider and assess the regulatory framework and court decisions, particularly for transfer pricing, where recent developments have taken place, and tax authorities and tax courts alike are making their assessments and decisions considering said developments.
According to the OECD’s TAS Database 2022, 723,396 tax audits were conducted in the Netherlands in 2020. Out of that number, 188,624 tax audits ended up in an adjustment made to taxpayer’s declaration. Due to the current and forecasted economic environment, it is not farfetched to expect that the scrutiny from the Dutch Tax Authorities (DTA) will increase, as governments around the globe need to increase tax revenues to fund increased social protection needs.
Below, we present a brief summary and our takeaways from the most recent court decisions in the Netherlands. Whilst the specifics of the TP cases which were adjudicated in 2022 are diverse and touch on a wide range of industries and topics, we believe it is possible to draw a common thread between these cases which clearly shows those issues identified by the DTA (and by extension the courts) as hot topics.
First, the increased focus on financial transactions. This is also evident in the comprehensive update of the Dutch TP Decree (published July 2022) with respect to financial transactions. In particular, we see a focus on what could be deemed as an arm’s length capital structuring. Second, the courts have stressed the importance of complete, accurate and consistent TP framework. The analysed cases demonstrate that courts heavily rely on the exact wording used in TP reports (as well as supporting documentation), and expect that large multinational groups are fiscally informed and in control of their tax policy.
Transfer pricing is becoming more relevant in the current tax audit context, and thus, it is important to make sure that not only transfer pricing documentation is available in advance, but also that the entire transfer pricing and tax narrative is aligned to ensure the best outcome from the potential scrutiny by DTA or tax authorities from all around the world.