International Tax Planning and Transfer Pricing Planning: Netherlands from a US perspective

• Author: Professor Dr. Rainer Zielke
• Profession: Professor in business economics at Østfold University College, Halden, Norway
• Updated at: April 2017

Contenido 1 Abstract tax planning 2 Abstract transfer pricing planning 2.1 Introduction 2.2 The high tax country the Netherlands in the OECD context 2.3 Transfer pricing rules of the Netherlands 2.3.1 Country-per-Country (CbC) reporting 2.3.2 Laws and rules 2.3.3 Arm's length principle 2.3.4 Transfer pricing methods 2.3.5 Definition of related companies 2.3.6 Reporting requirements 2.3.7 Documentation requirements 2.3.8 Cost sharing 2.3.9 Interaction between customs valuation and transfer pricing 2.3.10 Dispute resolution 2.4 Calculation of the case studies in international tax planning between the Netherlands and the USA 2.4.1 Design of the tables 2.4.2 The treaty the Netherlands-USA in brief 2.4.3 BEPS Project progress 2.4.4 The Netherlands in brief 2.4.5 The USA in brief 2.4.6 Design of case studies 2.4.7 Case study 1: Dividends from the Netherlands to the US 2.4.8 Case study 2: Interests from the Netherlands to the US 2.4.9 Case study 3: Royalties from the Netherlands to the US 2.4.10 Case study 4: Management and technical service fees from the Netherlands to the US 2.4.11 Case study 5: Capital gains with the Netherlands as asset country to the US as seller country 2.4.12 Case study 6: Dividends from the US to the Netherlands 2.4.13 Case study 7: Interests from the US to the Netherlands 2.4.14 Case study 8: Royalties from the US to the Netherlands 2.4.15 Case study 9: Management and technical service fees from the US to the Netherlands 2.4.16 Case study 10: Capital gains with the US as asset country and the Netherlands as seller country 2.5 Concluding remarks 3 Notes

Abstract tax planning

According to the International Monetary Fund, the Netherlands confirms in 2016 with a gross domestic product (GDP) of US$ 769,930 million the sixth-highest GDP of the European Union. In the Netherlands, the corporate income tax is levied at a rate of 20.00% on the first EUR 200,000 and 25.00% on the excess. The Dutch corporate tax system is a classical system, the corporate profits are fully taxed and distributions from the taxed profits are again fully taxed in the hands of the shareholders. Distributions are not deductible from taxable income. Thus, the Netherlands is a high tax country. Especially for multinational enterprises, it is therefore interesting to realize profits in lower taxing countries by means of tax planning measures. The Netherlands have introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting. According to the OECD, Dutch GDP growth is projected to remain broad-based and steady at around 2%. Private consumption will benefit from improving labor market conditions. The housing market will strengthen further on the back of low interest rates. Wages are set to accelerate as unemployment continues to decline, while inflation will increase gradually from its low level. The current account surplus is expected to remain high despite firm domestic demand and lower gas exports. Very accommodative euro area monetary policy is supporting demand. The fiscal policy stance is projected to be broadly neutral. Continuing to improve skills, particularly of immigrants and the long-term unemployed, and better matching skills to jobs, would raise productivity and potential GDP growth while also helping to make growth more inclusive. The public finances are healthy, which provides room that should be used to finance more growth-friendly spending, notably investment in education and R&D. The tax system can be made more efficient, equitable and environmentally friendly, and preparations for a broad tax reform should be revived. In view of the robust housing market recovery, the reduction of mortgage interest tax relief should be accelerated. This chapter provides a survey on the actual tax law frame conditions in the Netherlands and practical support in international tax planning and transfer pricing planning between the Netherlands and the US based on cross border case studies.

Abstract transfer pricing planning

With respect to transfer pricing the Netherlands applies the arm’s length principle and the OECD Guidelines, the following transfer pricing methods are applicable: the comparable uncontrolled price method (CUP), the resale price method, the transactional net margin method (TNMM) and the profit split method. No method is prefer over another. Two companies are regarded as related if one of them participates, directly or indirectly, in the control or capital of the other company. The level of shareholding required for companies to be regarded as related is not specified. More important is if the controlling company influences the transfer pricing. There are reporting and documentation requirements. Cost sharing is allowed in practice, there is a connection between customs valuation and transfer pricing and with respect to dispute resolution advance pricing agreements are available.

Introduction

International tax planning and transfer pricing planning between the Netherlands as developed economy and playing a special role in the European economy for many centuries, with shipping, fishing, agriculture, trade, and banking been leading sectors of the Dutch economy and having a high level of economic freedom and the US as most important national economy of the world based on cross-border case studies is of central importance. In addition, the USA confirm with a population of 321 million inhabitants in 2015 3rd place of the most populous countries in the world (4.40% of the world population).

According to the International Monetary Fund, ^[1] the Netherlands confirms in 2016 with a gross domestic product (GDP) of US$ 769,930 million the sixth-highest GDP of the European Union. In the Netherlands, the corporate income tax is levied at a rate of 20.00% on the first EUR 200,000 and 25.00% on the excess. The Dutch corporate tax system is a classical system, the corporate profits are fully taxed and distributions from the taxed profits are again fully taxed in the hands of the shareholders. Distributions are not deductible from taxable income. Thus, the Netherlands is a high tax country. Especially for multinational enterprises, it is therefore interesting to realize profits in lower taxing countries by means of tax planning measures. The Netherlands have introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting.

According to the OECD, ^[2] Dutch GDP growth is projected to remain broad-based and steady at around 2%. Private consumption will benefit from improving labor market conditions. The housing market will strengthen further on the back of low interest rates. Wages are set to accelerate as unemployment continues to decline, while inflation will increase gradually from its low level. The current account surplus is expected to remain high despite firm domestic demand and lower gas exports. Very accommodative euro area monetary policy is supporting demand. The fiscal policy stance is projected to be broadly neutral. Continuing to improve skills, particularly of immigrants and the long-term unemployed, and better matching skills to jobs, would raise productivity and potential GDP growth while also helping to make growth more inclusive. The public finances are healthy, which provides room that should be used to finance more growth-friendly spending, notably investment in education and R&D. The tax system can be made more efficient, equitable and environmentally friendly, and preparations for a broad tax reform should be revived. In view of the robust housing market recovery, the reduction of mortgage interest tax relief should be accelerated.

According to Orbitax, ^[3] (Daily Tax News Digest of 14 December 2016),

legislation incorporating amendments to the Dutch fiscal unity regime was approved by parliament on 29 November 2016 and published in the Official Gazette on 8 December. The legislation incorporates into the Corporate Income Tax Act 1969, Decree No. BLKB2014/2137M, which was issued in 2014 as a result of a European Court decision that the Netherland's fiscal unity regime was not compliant with EU Law because it violated the principle of freedom of establishment.

The provisions of the Decree, now incorporated into the Corporate Income Tax Act, include that a fiscal unity may be formed:

• Between a Dutch parent and a Dutch sub-subsidiary when the sub-subsidiary is held by one or more intermediaries resident in other EU/EEA jurisdictions; and

• Between multiple Dutch subsidiaries when they share a parent company resident in another EU/EEA jurisdiction.

In addition to incorporating the provisions of the Decree, the legislation also provides additional clarification on certain requirements to form a fiscal unity in cases involving non-resident parent companies and intermediaries, including that:

• The non-resident parent company must be public company, limited liability company, cooperative, mutual insurance association, or a comparable foreign entity;

• The non-resident intermediary company must be a public company, limited liability company, or a comparable foreign entity;

• The holding requirement is 95% of the full legal and economic ownership of the shares; and

• The parent and intermediary companies must be resident in an EU/EEA jurisdiction and subject to tax on profits.

Lastly, the legislation includes provisions for the inclusion of Dutch permanent establishments of non-resident EU/EEA entities in a fiscal unity.

Click the following link for the legislation as published (Dutch language). ^[4] The legislation entered into force 9 December 2016, although the rules provided under the decree have generally applied since 16 December 2014.

According to Orbitax, ^[5] (Daily Tax News Digest of 21 September 2016) Finance Minister Jeroen Dijsselbloem presented the Dutch Tax Plan and Budget documents for 2017 to parliament on 20 September 2016. Some of the main measures of the plan include:

• Increasing the...