International trade involves tax complexity, especially when it comes to transactions between affiliated companies within a group, such as between parent and subsidiary companies or sister companies. These internal transactions are subject to transfer pricing, which must comply with the arm's length principle: as if they were traded between independent parties. This principle is the standard worldwide and is enshrined in legislation, treaties, and OECD guidelines. Incorrect substantiation can lead to additional assessments and fines.
We help organisations develop and implement transfer pricing policies that are compliant and strategically well thought-out. Even in cross-border acquisitions or restructurings, we ensure that your policy remains future-proof. This way, you reduce risks and create fiscal certainty.
We support you in drafting, optimising, and implementing transfer pricing policies and related documentation. We also support profit allocation to permanent establishments and obtaining rulings such as an APA. Thanks to our global network, we provide international support to ensure your organisation complies with applicable regulations worldwide.
A solid transfer pricing policy not only ensures compliance with local legislation, tax treaties, and OECD guidelines but also offers strategic benefits: transparency, predictability, and tax certainty. Especially in cases of restructuring or acquisitions, a future-proof policy is crucial. We make sure your policy not only complies with the rules but also aligns with your strategic goals.
Please contact our specialists for more information about our services.
Grant Thornton Netherlands is a member of Grant Thornton International Ltd (GTIL), one of the world's largest networks (#7) of independent accounting and advisory firms, with 76,000 professionals in 156 markets. From eight Dutch offices, more than 700 professionals support our clients with advice and guidance in the fields of accountancy, tax, and (financial) advisory. We deliver world-class expertise in a way that seamlessly aligns with each client's unique situation. We operate from a solid foundation with a flexible and results-driven mindset.
Transfer pricing, or transfer prices, are the prices that companies within a group charge for internal transactions, such as between parent and subsidiary companies. In cross-border transactions, the arm's length principle applies, treating trades as if they were between independent parties. This principle is enshrined in legislation, tax treaties, and OECD guidelines worldwide, forming the basis for effective transfer pricing policies.
Complying with transfer pricing rules prevents companies from artificially shifting profits to countries with lower tax rates. It also protects companies from tax risks, such as additional assessments, fines, and lengthy discussions with tax authorities over incorrect transfer pricing in internal transactions. A well-founded transfer pricing policy thus contributes to both tax compliance and financial stability.
Companies that conduct cross-border transactions between affiliated companies must demonstrate that these transactions occur at arm's length. Formal documentation requirements vary by country and are often linked to turnover or transaction thresholds. The purpose of this documentation is to demonstrate that the prices charged are market-based and in line with both local tax laws and international tax treaties, as well as OECD guidelines.
In the Netherlands, companies with a consolidated group turnover exceeding 50 million euros are required to prepare a Local File and a Master File. With global turnover exceeding €750 million, a Country-by-Country Report is added. Below this threshold, the obligation to substantiate the arm's length nature of internal transactions remains, but this is not subject to formal documentation requirements under the law.
Failure to comply with transfer pricing rules can have significant consequences. When internal transactions between affiliates are not substantiated or incorrectly documented, tax authorities may correct transfer prices and reallocate profits to another country. This can lead to double taxation, where two countries tax the same profit. Additional assessments, fines, and lengthy audits or legal proceedings may follow.
Besides financial risks, this also results in reputational damage and a deteriorated relationship with tax authorities. A well-founded and compliant transfer pricing policy is therefore essential to mitigate risks, ensure transparency, and create tax certainty. Adherence to the rules not only prevents sanctions but also contributes to the stability of international operations.
The arm's length principle is the global standard for setting transfer prices between affiliates. The premise is that internal transactions take place at arm's length, as if they were trade between independent parties. This principle is not just a theoretical guideline, but a legal obligation: it is enshrined in local legislation, tax treaties, and the OECD guidelines.
A well-founded transfer pricing policy and related documentation are essential for compliance with these rules. Failure or incorrect substantiation of the arm's length nature of transactions can result in significant tax risks, including additional assessments and fines. Moreover, solid policies provide transparency and predictability, which is essential for international business operations. The arm's-length principle helps create tax certainty and avoid disputes with tax authorities.
Making a move towards sustainability does not have to be costly. Take a look at some considerable tax facilities the Netherlands provides for investing in environmentally and energy-friendly assets.
On 12 September 2023, the European Commission published the “Business in Europe: Framework for Income Taxation” (BEFIT) proposal. The BEFIT proposal consists of a new corporate income tax system and new transfer pricing rules. With the new corporate income tax system rules, the European Commission tries to align the corporate income tax bases of multinational groups that operate in the EU. When adopted, BEFIT will replace the current corporate income tax systems of EU Member States for certain EU based entities. In this alert, we will guide you trough the most important topics of BEFIT.
