Netherlands: proposal to eliminate double non-taxation
On March 4, 2021, the Dutch Ministry of Finance released a press report regarding the launch of internet consultations on a bill to eliminate double non-taxation through transfer pricing mismatch from January 1, 2022. If approved in its current form, this legislation may also have an impact on some existing situations. Feedback can be provided until April 2, 2021.
On the basis of long-standing case law in the Netherlands, the arm’s length conditions for related party transactions are adjusted as if the conditions were established between independent parties. This may result in a downward adjustment of profits for Dutch corporation tax purposes, whether or not the country of the party related to the transaction applies a corresponding upward adjustment. This has been identified as an unwanted source of (potential) tax evasion.
The bill has three main elements:
- The arm’s length principle will not be applied if this leads to a reduction in Dutch taxable profit (for example via an “informal capital contribution” or a “deemed dividend”) to the extent that the party related to the transaction does not include not an amount corresponding to the increase. adjustment of its income tax base (or does so for a lower amount) or if this upward adjustment is not taken into account because the other jurisdiction does not levy income tax .
- No increase in the base (up to the arm’s length value) will be provided for assets which are transferred by a related party to a Dutch taxpayer at a value lower than the arm’s length value as no corresponding adjustment for full competition value is taken into account in the transferor’s profit tax base or if this upward adjustment is not taken into account because the other jurisdiction does not levy income tax. profits.
- The amount of depreciation to be taken into account (in the future) by a Dutch taxpayer on assets acquired from a related party may be limited with regard to assets that have been transferred during one of the five accounting years preceding the accounting year which begins on or after January 1, 2022 and which, at the time of the transfer, would be covered by the draft law (under point 2 above), if the legislation was in force at the time.
Existing and future situations targeted by the proposal, for example, include cases where:
- a Dutch taxpayer (i) attracts (or has attracted) a loan at a rate lower than the arm’s length rate, and / or (ii) grants (or has granted) a loan at a rate higher than a full interest rate competition, while the agreed interest rate is – respectively – included or deducted from the profit tax base of the party related to the transaction;
- an asset is (or has been) transferred to a Dutch taxpayer at a value lower than the arm’s length value without taking into account that higher arm’s length value for the purposes of the transferor’s profit tax base, while for the determination of the depreciation base for Netherlands corporation tax purposes, the highest arm’s length value is used (which may have occurred, for example, under repatriation of intangible property, including transactions that took place in previous years).
Interested parties are invited to provide their comments by April 2, 2021. Reactions will be published.