Transactions between members of a multinational group must always be conducted on an arm’s length basis for tax purposes. This prevents profits generated by a group from being allocated to the country with the most favourable tax regime. For many years now, companies have been subject to the statutory obligation to document the arm’s length nature of their transactions.
The rules for country-by-country reporting have been changed and tightened with effect from the fiscal year 2016. Multinational groups whose consolidated global revenue is € 50 million or higher are required to include additional transfer pricing documentation per entity in their accounting records.
Members of multinational groups whose revenue is € 50 million or higher are subject to the following two documentation requirements. They must produce:
- a master file; and
- a local file.
Members of multinational groups whose consolidated global revenue is at least € 750 million are not only required to keep a master file and a local file, but they also have to include a country-by-country report in their accounting records.
A master file contains information regarding the structure of the entire multinational group, a description of the operations, information about the group’s patents and details on the financial position of the entire multinational group.
The local file contains information regarding the operations of the legal person itself, such as transactions between the legal person and other group entities, and information regarding the financial position of the legal entity.
The requirement to draw up a country-by-country report applies to multinational groups generating at least € 750 million in revenue globally only. This report contains information regarding the countries where the group has a presence. The information addresses such aspects as revenue details per country, profit per country, headcount per country and tax liability per country based on the separate financial statements of the different group entities.
When do the files have to be in place?
The new documentation requirements were included in the Dutch Corporate Income Tax Act on 1 January 2016. As a result, the files have to be in place before a company’s corporate income tax return for 2016 is filed with the Dutch Tax and Customs Administration. If you have already filed your corporate income tax return for 2016 with the Dutch Tax and Customs Administration, we would recommend that you arrange for the files to be in place as soon as possible.
Advance Pricing Agreement and Advance Tax Ruling
It is common practice for the Dutch Tax and Customs Administration to conclude rulings about the arm’s length nature of intercompany transactions. A ruling may concern a specific transaction (Advance Tax Ruling; ATR) or the level of transfer prices (Advance Pricing Agreement; APA).
Our specialist advisers would be happy to assist you with any transfer pricing issue you may have. To get in touch with them, please send an email to email@example.com or use the contact form below.
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