On December 30, 2015, the Dutch Ministry of Finance issued Regulation No. DB/2015/462M (the Regulations), which sets out the information required under the country’s recently adopted transfer pricing documentation requirements. The requirements are in line with the guidelines developed as part of the Action 13 final OECD BEPS report.
The budget legislation approved in December adopts the OECD’s recommended 3-tiered approach to documentation, which requires that multinational groups meeting specific revenue thresholds prepare a master file for the entire global group, a local file for each group entity, and a country-by-country (CbC) report to be filed in the ultimate parent company’s tax jurisdiction.
Under the new law, which takes effect January 1, 2016, master and local file submissions will be required from Dutch entities that are part of a multinational group with consolidated revenue of at least € 50 million, and a CbC report must be filed by Dutch resident parents of multinational groups with consolidated revenue of at least € 750 million. As recommended in the Action 13 final OECD BEPS report, the documentation requirements will apply for tax years beginning on or after January 1, 2016.
The Regulations, which adopt the CbC template recommended by the OECD, specify that CbC reports will be due within 12 months of the last day of the reporting year. As provided in the template, resident parents of multinational groups that meet the revenue threshold must report revenue, pretax profit, income taxes paid, income taxes accrued, stated capital, accumulated earnings, number of employees, and tangible assets by jurisdiction.
The Regulations allow taxpayers to prepare master and local files in either Dutch or English. The CbC report must be prepared in accordance with the model included in the Regulations and submitted in XML format. The report may be submitted in Dutch or English.
The required information for the CbC report includes the following for each jurisdiction:
- Revenues (unrelated and related parties).
- Profit (loss) before tax.
- Income tax paid (cash basis).
- Income tax accrued – current year.
- Stated capital.
- Accumulated earnings.
- Number of employees.
- Tangible assets – other than cash and cash equivalents.
- Constituent entities resident in each tax jurisdiction (including Tax ID and address).
- Jurisdiction of organization or incorporation if different from jurisdiction of residence.
- Main business activities of each constituent entity.
- Additional information or explanation deemed necessary to understand the CbC report.
The Master File information requirements are based directly on the OECD guidelines, and include:
- Details of the MNE’s organizational structure, including a chart illustrating the MNE’s legal and ownership structure and geographical location of operating entities.
- Description of the MNE’s business, including important drivers of business profit, description of the top five goods or services of the MNE group by revenue, important service arrangements between members of the MNE group.
- Description of the MNE’s intangibles, including a description of the MNE’s strategy regarding intangibles, location of R&D facilities and management, a list of important intangibles of the MNE group, transfer pricing (TP) policies regarding R&D and intangibles.
- Details of the MNE’s intercompany financial activities, including how the group is financed, financing agreements with unrelated lenders, group members providing a central financing function for the group.
- Information on the MNE’s financial and tax positions, including financial statements for the year concerned and a list and description of any existing advance pricing agreements (APA) and tax rulings related to the allocation of income.
The Local File information requirements are also based directly on the OECD guidelines, and include:
- Details of the local entity, including management structure, local organization chart, detailed description of the business and business strategy.
- Details of controlled transactions involving the local entity, including descriptions of the transaction types, the amount of intra-group payments and receipts for each category of controlled transactions, identification of associated enterprises involved, transfer pricing methods used, comparables selected and adjustments made, related APAs.
- Financial information of the local entity, including financial accounts for the year concerned, Information and allocation schedules, and summary schedules of relevant financial data.
Notably, penalties will be imposed in instances of intentional non-compliance or “serious misconduct” of the reporting entity regarding its obligation to file the CbC report, with a potential maximum penalty in the amount of €20,250, in addition to possible criminal prosecution.