1. Borrie & Co Tax Lawyers
The Netherlands
Firm facts:
Maurice Kruidenier
 Located in Rotterdam, Amsterdam, Hilversum
 120 staff, 10 partners

2. What is Transfer Pricing
What are transfer prices?
Transfer prices are prices charged in transactions between related
parties (in multinational enterprises)
Transfer prices can be:
 Prices for goods
 Prices for services including
 Royalties for intellectual property (patents, copyrights,
trademarks, other know-how)
 Interest on related-party loans
Transfer pricing is really about the allocation of (global) profits
between entities residing in different jurisdictions

3. Why is it important
1994 or 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
earlier
Argentina
Australia
Austria
Belgium
Brazil
. Argentina
Australia
Austria
Canada
Chile
China
(People’s
Argentina Belgium Republic
Australia Brazil of)
Austria Canada Colombia
Belgium Chile Czech
Argentina Brazil China Republic
Australia Canada (People’s Denmark
Austria Chile Republic Ecuador
Belgium China of) Egypt
Brazil (People’s Colombia Estonia
Canada Republic Czech Finland
Chile of) Republic France
Argentina China Colombia Denmark Germany
Argentina Australia (People’s Czech Ecuador Greece
Australia Austria Republic Republic Egypt Hong Kong
Austria Brazil of) Denmark Estonia Hungary
Brazil Canada Colombia Ecuador France India
Canada Chile Czech Egypt Germany Indonesia
Chile China Republic Estonia Hungary Ireland
Argentina China (People’s Denmark France India (Republic of)
Australia (People’s Republic Estonia Germany Indonesia Israel
Argentina Austria Republic of) France Hungary Israel Italy
Australia Brazil of) Czech Germany India Italy Japan
Austria Canada Czech Republic Hungary Indonesia Japan Korea
Argentina Brazil Chile Republic Denmark India Italy Korea (Republic of)
Australia Canada China Denmark Estonia Indonesia Japan (Republic of) Latvia
Argentina Austria Chile (People’s Estonia France Italy Korea Latvia Lithuania
Australia Brazil China Republic France Germany Japan (Republic of) Lithuania Luxembourg
Austria Canada (People’s of) Germany Hungary Korea Latvia Luxembourg Malaysia
Brazil Chile Republic Czech India India (Republic of) Lithuania Malaysia Mexico
Canada China of) Republic Indonesia Indonesia Latvia Luxembourg Mexico Montenegro
Chile (People’s Czech Denmark Italy Italy Lithuania Malaysia Montenegro Netherlands
China Republic Republic Estonia Japan Japan Luxembourg Mexico Netherlands New Zealand
(People’s of) Denmark France Korea Korea Malaysia Montenegro New Zealand OECD
Australia Republic Czech Estonia Germany (Republic of) (Republic of) Mexico Netherlands OECD Peru
Austria of) Republic France India Latvia Latvia Montenegro New Peru Philippines
Brazil Czech Denmark Germany Indonesia Luxembourg Luxembourg Netherlands Zealand Philippines Poland
Chile Republic France Indonesia Italy Mexico Malaysia New Zealand OECD Poland Portugal
Czech Denmark Germany Italy Japan Montenegro Mexico OECD Peru Portugal Romania
Australia Republic France Indonesia Japan Korea Netherlands Montenegro Peru Philippines Romania Russia
Australia Austria France Germany Italy Korea (Republic of) New Netherlands Philippines Poland Russia Serbia
Czech Czech Germany Indonesia Japan (Republic of) Latvia Zealand New Zealand Poland Portugal Serbia Singapore
Republic Republic Indonesia Italy Korea Latvia Mexico OECD OECD Portugal Romania Singapore Slovak
France France Italy Japan (Republic of) Mexico New Zealand Peru Peru Romania Russia Slovak Republic
Germany Germany Japan Korea Latvia New OECD Philippines Philippines Russia Serbia Republic Slovenia
Indonesia Indonesia Korea (Republic of) Mexico Zealand Peru Poland Poland Serbia Singapore Slovenia South Africa
Australia Italy Italy (Republic of) Latvia New Zealand OECD Philippines Portugal Portugal Singapore Slovak South Africa Spain
Czech Japan Japan Latvia Mexico OECD Philippines Poland Russia Russia Slovak Republic Spain Sri Lanka
Republic Latvia Korea Mexico New Philippines Poland Russia Serbia Serbia Republic Slovenia Sri Lanka Sweden
France OECD (Republic of) New Zealand Zealand Poland Russia Serbia Singapore Singapore South Africa South Africa Sweden Switzerland
Germany Philippine Latvia OECD OECD Russia Singapore Singapore Slovak Slovak Sweden Sweden Taiwan Taiwan
Indonesia s OECD Philippines Philippines Singapore Slovak Slovak Republic Republic Taiwan Taiwan (Republic (Republic
Italy Poland Philippines Poland Poland Slovak Republic Republic South Africa South Africa (Republic (Republic of China) of China)
Japan Singapore Poland Singapore Singapore Republic South Africa South Africa Sweden Sweden of China) of China) Thailand Thailand
Poland Slovak Singapore Slovak Slovak South Africa Sweden Sweden Thailand Thailand Thailand Thailand Ukraine Turkey
Singapore Republic Slovak Republic Republic Sweden Ukraine Ukraine Ukraine Ukraine Ukraine Ukraine United Ukraine
Slovak South Republic South Africa South Africa Ukraine United United United United United United Kingdom United
Republic Africa South Africa Sweden Sweden United Kingdom Kingdom Kingdom Kingdom Kingdom Kingdom United Kingdom
Sweden Sweden Sweden Ukraine Ukraine Kingdom United United United United United United States United States
United United United United United United States States States States States States Venezuela Venezuela
States States States States States States Venezuela Venezuela Venezuela Venezuela Venezuela Venezuela Vietnam Vietnam

4. General Consensus
Article 9 of the OECD Model Tax Convention:
The arm’s length principle
[Where] conditions are made or imposed between the
two [associated] enterprises in their commercial or
financial relations which differ from those which
would be made between independent enterprises, then
any profits which would, but for those conditions,
have accrued to one of the enterprises, but, by reason
of those conditions, have not so accrued, may be
included in the profits of that enterprise and taxed
accordingly.

5. Comparability
The arm’s length principle requires
 a comparison
 of the conditions in
 a controlled transaction with
 the conditions in
 transactions between independent enterprises.
Not merely a comparison of prices, but all economically relevant
characteristics of the situations being compared must be sufficiently
comparable.

6. Example
Company A
Taxable profits 1.000
CIT 25% 250
Net profit 750
If the Company A can restructure its operations and subsequently shift
50% of its profits to a related Company B in a low tax jurisdiction (for
example 10%) the following tax can be saved:
Company A
Taxable profits 500
CIT 25% 125
Net profit 375
Company B
Taxable profits 500
CIT10% 50
Net profit 450
Tax savings would amount to (250-125-50) = 75

7. Example (2)
Result:
A decrease in profit potential of Company A and
A decrease in the taxable base in the Netherlands
Likely consequence:
(Dutch) tax authorities will scrutinize the transfer of profits to
Company B on the basis of the arm’s length principle
Want to understand whether the intercompany transaction and
subsequent remuneration for Company A and Company B is at arm’s
length

8. Contact Details
Borrie & Co Tax Lawyers
Transfer Pricing and Tax Efficient Supply Chain Management
Maarten Borrie
Jan Leentvaarlaan 1
3065 DC Rotterdam
The Netherlands
PO Box 8565
3009 AN Rotterdam
The Netherlands
Tel +31 (0)10 266 77 33
Mob +31 (0)65 252 37 28
E-mail mborrie@borrie.nl

9. Dutch thin cap regulations
Enacted in 1997
Anti abuse legislation against eroding the
taxable base for the Corporate Income Tax (CIT)

10. Before 1997 example CIT base erosion
NA Netherlands Antilles NA
N.V. Interest taxed at 2,4%-3%
Loan
Interest
NL NL
B.V.
Netherlands
Interest deducted at 40%
(loan returned as dividend)

11. CIT base erosion legislation (10a)
For a company subject to Dutch CIT, interests and costs of
a debt paid to an affiliated person, are not deductible,
insofar the debt is connected to:
a distribution of profits or a refund of capital,
the acquisition or expansion of a share interest in an
affiliated corporation,

12. CIT base erosion legislation (10a)
Connected to: Very broad meaning, direct or indirect, for
past and future debt!
Affiliated:
A corporation in which an 1/3 share interest is held;
A corporation or natural person which holds an 1/3 share
interest in the debtor.
Escapes
h)Debt was decisively incurred for commercial reasons;
or
•The interest is subject to an effective tax rate of 10%.

13. Example
Interest subject to 2,4-3% tax
NA NA
N.V.
100% 100% Interest, not deductible!
Loan NL
NL NL
B.V. Purchase B.V.
Participation
100% of the shares

14. Thin Capitalization (10d)
Interest paid on a debt to an affiliated
corporation is not deductible if:
The debtor is joined in a group.
The interest paid to affiliated corporations
exceeds the received interest from affiliated
corporations.
The debt vs equity ratio exceeds 3:1.

15. Thin capitalization 10d CIT
 Group: corporations that are economically
and organizationally linked.
 3:1 debt vs equity ratio (safe harbour):
Equity is always considered to be at least €1
+ 500k. Surplus is not deductible.

16. Example
Assets 10 mio Equity 1 mio
Group loan 9 mio
Safe harbor ratio (3:1)
Calculation non deductible interest:
(9 mio – 3*1 mio) -0,5 mio = 5,5 mio x 5%= 275k