New Dutch Transfer Pricing Decree

The Dutch Ministry of Finance has published its new transfer pricing decree dated 14 June 2022 (the Decree) .  This Decree provides further guidance on the application of the arm's length principle in specific transactions and Dutch Ministry of Finance’s view on cases where the OECD Transfer Pricing Guidelines leave room for interpretation. The Decree replaces the prior version dating back to 2018.  

What is new?

The most important amendments to the Decree include the following topics:

• The Decree deals with the question how a support measure (such as the NOW; Dutch subsidy measure) affects the conditions (including the price) that the parties apply in related party transactions and what the consequences are for transfer pricing purposes, for example, in situations where related parties have agreed a remuneration that is based on the costs incurred. 
• A new paragraph is inserted on implicit support when determining the credit score of a group company that acts as a borrower in finance transactions. 
• The Decree approves the OECD's "cost of funds approach" for determining an arm's length interest rate. 
• Financial services companies (FSCs) are considered to form a special group of group service providers because of the strong correlation between incoming and outgoing cash flows. When there is such a strong correlation, the FSC should generally be considered to perform routine functions only. This is, however, different if the FSC is exposed to credit risks and market risks.
• In cases where the FSC have insufficient control or financial capacity to carry the risks (contractually) allocated to it, those risks should be allocated to the party that is able to exercise control and/or has the financial capacity to carry the risks.
• A new paragraph is inserted on notional cash pooling and zero balancing cash pooling. It also describes (i) the division of cash pool benefits and (ii) cash pool cross guarantees. Unfortunately, only very limited practical guidance is given.
• New guidance is also included on the treatment of group guarantees and how to price them. In cases where it is not possible to determine a specific arm's length guarantee fee, the Decree approves the use of a fee that is determined by dividing equally the benefit received by the beneficiary of the guarantee between the guarantor and the beneficiary. It also touches upon cross guarantees within groups.
• New is the paragraph on captive insurance activities and the Decree includes six questions (that all need to be answered in the  affirmative) in order to consider these activities to be "real insurance activities".
  
   

Next steps

The Decree has mainly been updated to reflect OECD’s guidance on financial transaction in Chapter X of the OECD Transfer Pricing Guidelines and certain other recent developments, such as Supreme Court cases.  It is important for taxpayers to consider if their existing transfer pricing policies are still in line with the (updated) guidance. This is especially the case for financial transactions, such as implicit support, guarantees and captives.