Strong Procedural Rights Confirmed for Taxpayers with Solid Transfer Pricing Documentation
On September 19, the Dutch District Court ruled in the first ever Dutch court case on the transfer pricing implications of a large business restructuring and confirmed the legal certainty that taxpayers can derive from thorough transfer pricing documentation. The case was litigated by the Tax Dispute Resolution group of Baker McKenzie Amsterdam.
Although the nature of this case is highly factual, the decision is an important development in the pricing and taxation of international business restructurings, as it confirms the boundaries to arbitrary transfer pricing adjustments by the Dutch tax authorities. Within the context of transfer pricing discussions, the theory of the case and the pricing (valuation) as documented by a taxpayer is the starting point and cannot easily be overthrown by the tax authorities. Taxpayers should not be required to defend themselves against alternative analyses proposed by tax authorities during audits and APA discussions, as long as the tax authorities have not proven that the taxpayer's documentation is insufficient to support the arm's length nature of the transaction(s).
The District Court decided in favor of the Dutch taxpayer and rejected the tax adjustments. The Court held that the taxpayer fulfilled its legal obligations by preparing thorough transfer pricing documentation. It confirmed that the burden of proof is on the Dutch tax authorities, hence it is up to the Dutch tax authorities to prove that the transactions did not take place for commercial reasons and that the agreed transfer prices as established by the taxpayer were not at arm's length. Only thereafter, the tax authorities' own alternative analyses may become relevant.
This judgment therefore reaffirms the legal certainty that taxpayers can derive from thorough transfer pricing documentation and accurate corporate contracts substantiating critical group transactions. The decision has not been published yet. It is not yet known whether the case will be appealed.
Baker McKenzie has the tax and transfer pricing capabilities worldwide to assist your company during the entire transfer pricing lifecycle, including transfer pricing planning, documentation and dispute resolution.