Why Branch Registration in the Netherlands is Important to consider as option to enter a new market
Registering a branch is an efficient, cost-effective way to expand your business into a foreign market. The Netherlands, with its robust...
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Transfer Pricing in the Netherlands; Intra-Group transactions
Transfer pricing is an important tax aspect, when expanding your company overseas, and performing transactions within your Group.
When independent parties do business, a fair price will be established by the free market. This could be different when affiliated businesses (within the same Group) do business, abd set prices and conditions that no third party would accept. This is when business is conducted between related entities must be performed according to the arm's length principle.
Transfer Pricing has been in the spotlight in recent years due to the media fuss about tax avoidance and the tax morale of multinationals. As a result, new laws have been introduced and SMEs are now also dealing with transfer pricing. This article explains and handles how SMEs can deal with transfer pricing in a practical way.
If you are active in several countries with your own branch, you will in any case have to deal with Transfer Pricing. Due to the media fuss around tax avoidance and the tax morality used, the control of this is also on edge again. Countries are afraid of losing tax revenues when companies can shift profits they have earned in the various countries. However, this has not become any easier since the legislative amendments as of 2016, and there has even been a significant increase in the administrative burden for taxpayers. Transfer Pricing documentation must be updated annually and failure to comply with that obligation is subject to various sanctions (administrative and criminal).
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Why is Transfer Pricing relevant?
In fiscal matters, Transfer Pricing is ultimately about the question of which government can levy on which part of the profit of a company. In an economy where sixty to seventy percent of world trade takes place between multinationals, governments are increasingly using extensive Transfer Pricing legislation and documentation obligations as a tool to raise their share of taxes. Internal transfer prices largely determine the allocation (allocation) of revenues and costs to the group companies in the countries concerned. The taxable profit and the tax owed logically follow from this.
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Transfer pricing methods
Taxpayers may choose from all of the, in the guidelines, mentioned methods. The OECD mentions the following transfer pricing methods to comply with the arm’s length principle:
The comparable uncontrolled price method;
The resale price method;
The cost-plus method;
The transactional profit split method;
The transactional net margin method.
As mentioned above, taxpayers can choose the method best suitable for their business.
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How to deal with Transfer Pricing
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There are a number of important steps to make a Transfer Pricing project successful. These steps can (partly) be carried out yourself if there is sufficient knowledge of the matter. But even with insufficient knowledge of Transfer Pricing, every company can still do this itself. One of the most important things about Transfer Pricing is simply to present the facts. The most important facts are the internal transactions with the associated functions, risks and assets. To start a transfer pricing project, companies can take the following steps:
Create a functional analysis matrix. In the first column, note all functions, risks and assets. In the top row you put the entities and / or countries. Then you go through the functions, risks and assets for each entity and tick them if they apply;
Then make a characterization per entity. At Transfer Pricing we often distinguish the 'simple' versus the 'entrepreneur' function. The latter has the most functions, risks and assets. Usually a clear picture already follows from the matrix. The matrix often also reveals a business model, for example central or decentralized;
Make an overview of all internal transactions and bundle them into groups, for example sales, services, financing, etc .;
Select the appropriate Transfer Pricing method to be applied to the transactions. This is a step that follows from the characterization and it is also a very crucial step. The Transfer Pricing methods are described in the new legislation and the OECD Transfer Pricing guidelines;
Finally, look for comparable transactions to demonstrate the business nature of the transactions and / or profit. When there are transactions that are done both internally and externally, that is a possible comparison. If there are no comparable transactions with third parties, databases should be used.
The above-mentioned steps together form the final Transfer Pricing story and serve as an explanation to, for example, an inspector, but also, for example, to an accountant. However, facts are open to interpretation. So having Transfer Pricing documentation alone is no guarantee of success. Documentation must be kept and the story must be correct. Even when changes occur.
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Advanced rulings
It is also possible to get an advanced ruling on transfer pricing. Meaning that taxpayers can have a consult with the Dutch tax authorities in order to make an agreement about the cross border activities of their related companies. In general, an advance tax ruling is treated as a binding opinion from the Dutch tax Authorities based on the facts and circumstances applying to all intra-group transactions. The ruling is binding only with respect to the activities specified in the ruling; if the actual facts and circumstances deviate, the ruling will be cancelled. These kinds of rulings are generally valid for a specified period and can be terminated in a number of cases.
The Dutch tax Authorities only consult with businesses having enough substance in The Netherlands. (please also check our article about substance)
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Transfer pricing documentation
Related companies must include in their administration a description of how prices are calculated between them. This calculation has to prove that the prices comply with the arm’s length principle.
Next to this, there are extra requirements for multinational group companies with a consolidated group turnover of € 750.000.000. These companies need to file an annual country-by-country report. In addition, Dutch taxpayers that are part of a multinational group with a consolidated turnover of at least € 50.000.000 must draw up a so-called ‘’ master file’’ and a ‘’local file’’.
Please note that: With effect from 1 January 2017, EU Member States are obligated to automatically exchange information on advance cross-border tax rulings and advance pricing arrangements.
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Category | Business Formation
This article will inform you on the different types of Dutch legal entities
How to start a sole proprietorship in the Netherlands in a few simple steps.
A holding company is really just a BV (Private Limited Company).
In this article we will explain you the details of the Formation Deed, and why they are so important.
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Can anybody use the services of House of Companies?Yes, basically anybody can use the services of the House of Companies. Even if you are not an entrepreneur yet! Our services are very low-key which allows companies of any sizes to expand overseas. We do have a strict onboarding process in place, and don’t deal with companies focused on tax avoidance, or who have operations in sanctioned countries, as well as certain sensitive industries.
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Is using a registered office address legal?Yes, 100% legal! Our team has over 10 years experience in providing registered office services, and our locations meet the standards of the Dutch Chamber of Commerce. Our locations provide a full time reception, and our locations are always able to provide you a working space when need be.
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Do I pay taxes when I use a virtual office in the Netherlands?A ‘virtual office’ typically does not pay taxes (yet). This is not due to a special tax status, but simply because a virtual office has no actual operations (or substance) yet (or has not started to make a profit, doing sales, or employing staff). In fact, a ‘virtual office’ is typically considered a ‘representative office’ and is not required to be registered at the Chamber of Commerce. Such requirements might change, once you perform any actual services from the Netherlands, or goods are stored and processed here. In case of doubt, it might be necessary to discuss your situation with a lawyer or accountant, but much information on this topic is available in our Dashboard.
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Does a Dutch company require a local address?In many cases a local company registration requires a local business address. Especially in (Western) European countries this is very common. There are some exceptions, especially in case of a branch registration (or a representative office). A registered office address is required to receive official government letters, and in come cases also to open a local corporate bank account.
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Can my Dutch business open a bank account?Yes, a business dealing on the Dutch market can also open a corporate bank account. However, this is becoming more challenging. House of Companies can inform you about European banks that can open bank accounts for any kind of European entity, without a visit to the bank required.
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When is a registered office address convenient for me?A registered office address is convenient for any kind of business, that is planning to expand to a new market, and is taking it step by step. A registered office address (or virtual office) allows you to explore a new market, while limiting your expenses. It’s not about being ‘virtual’, but it’s about avoiding as much bureaucracy and legal expenses as you can, while your business is not yet at its full capacity. Our tools allow you to get an understanding of the legal framework of a country, so you are able to make the decisions for yourself, rather than having to rely on an accountant or lawyer.
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Can I really submit my corporate tax return myself, without any charges?"Yes, anybody can submit their corporate tax return themselves, without any help from an accountant. Our Dashboard provides you the detailed information, step by step, on how to login to your online Tax Portal, and to file your tax return. Obviously, the more complicated your company activities (and transactions) the more complex your tax return will look like. But if you have almost no operations, then you can save thousands of euros in accounting fees, without requiring any accounting skills! Once your company grows, we offer more detailed information, so you can learn along the way. Or you can decide to involve an accountant at that stage.
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