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Transfer pricing for a Dutch subsidiary
Every charge between your Dutch BV (private limited company) and another group company must be priced as between independent parties, and the BV must be able to show how the price was set. That applies to every group, whatever its size.
A transfer pricing memo with an intercompany agreement
For one type of intercompany transaction: the facts, the method, the calculation and an agreement ready to sign.
The rule: prices as between independent parties
If one company participates in the management, control or capital of another, their profits are determined as if they had agreed the conditions that independent parties would have agreed (Article 8b of the Dutch Corporate Income Tax Act). The same applies between sister companies. If a price is not at arm's length, the Dutch tax authorities correct the Dutch profit.
Since 2022 the Netherlands only accepts a downward adjustment of the Dutch profit, for example a deduction for a service the group charged too little for, if the BV shows that the other group company includes the corresponding amount in a profit tax (Articles 8ba and 8bb).
What every BV must record
The BV's records must show how its transfer prices were set, and allow an assessment of whether independent parties would have agreed them. There is no threshold and no prescribed format. Large or unusual transactions need more support than small, routine ones. The records should be available from the moment the transaction takes place, not only when the Dutch tax authorities ask.
Master file and local file: only from € 50 million
A Dutch group company must include a master file and a local file in its records if the group's consolidated revenue in the preceding year was at least € 50 million. They must be ready within the term for filing the corporate income tax return, and may be in Dutch or English. A country-by-country report applies from € 750 million. Below € 50 million, the general recording duty above applies.
Management fees and services from the parent
- The parent can charge the BV for services that benefit the BV, at an arm's length price
- Shareholder activities cannot be charged, such as the parent's own consolidation and reporting to its shareholders. Those costs stay with the parent
- Low value-adding support services, such as HR, an IT helpdesk or accounting support, may be charged at cost plus 5%, allocated with a suitable key. The Dutch tax authorities accept this simplified approach without a benchmark study, provided it is documented
- The simplified approach does not apply to services that belong to the group's core business or add more than marginal value to it
Intercompany loans and withholding tax
Interest on a loan from the group must be at arm's length. In addition, the BV can deduct its net interest expense up to the higher of 24.5% of its adjusted profit (EBITDA) and € 1 million (Article 15b). Interest and royalties paid to a group company in a low-tax jurisdiction can be subject to Dutch conditional withholding tax of 25.8%.
VAT on intercompany charges
When a group company abroad charges the Dutch BV for services, the BV reports the Dutch VAT in its own return and deducts it in the same return, as far as it makes taxable supplies. When the BV charges a group company in another EU country, it charges no Dutch VAT and reports the service in its EC Sales List.
What else we do for foreign groups and their Dutch companies is set out on Dutch VAT for foreign businesses.
How we handle Dutch VAT for a group with several entities is explained on Dutch VAT compliance for international groups.
Example
A US parent company provides HR, IT helpdesk and accounting support to its group. The support team costs € 400,000 a year. The Dutch BV has 10% of the group's employees, so headcount is the allocation key.
- Share of the Dutch BV: 10% of € 400,000 = € 40,000
- Mark-up of 5%: € 2,000
- Annual charge to the BV: € 42,000, deductible for corporate income tax
- VAT: the BV reports 21% Dutch VAT of € 8,820 and deducts it in the same return if it makes only taxable supplies
- The cost of the parent's own consolidation and investor reporting is not in the cost pool
This is a worked example, not a client case. Whether a service qualifies as low value-adding depends on what the support team actually does.
What we do
We set out the facts, the functions, assets and risks of each party, choose the method and calculate the price, with a year-end true-up. You receive the memo and an intercompany agreement in English, ready to sign, and we check that the invoices and the VAT match. € 995 one-off for one type of transaction, € 295 for each additional type, and € 245 a year to update the memo. All amounts excl. VAT.
Not included: a benchmarking study from commercial databases, a master file, local file or country-by-country report, and advance pricing agreements. If your situation needs one, we tell you before we start.
Frequently asked questions
Does a small Dutch BV need transfer pricing documentation?
Yes. Every BV with intercompany transactions must record how its prices were set. The formal master file and local file only apply from € 50 million consolidated group revenue.
Can the parent charge the Dutch BV a management fee?
Yes, for services that benefit the BV, at an arm's length price. Shareholder activities, such as the parent's own consolidation, cannot be charged.
Is a 5% mark-up always accepted?
No. Only for low value-adding support services under the simplified approach, with the documentation it requires. Services in the group's core business need their own analysis.
How is an arm's length transfer price determined?
Usually with the methods of the OECD Guidelines, such as a comparison with prices between independent parties, the resale price minus a margin, or cost plus a mark-up. There is often no single correct price: an arm's length price lies within a range, and only a price outside it gives the tax inspector reason to adjust.
Can I get certainty about my transfer prices in advance?
Yes, with an Advance Pricing Agreement (APA). You request it from the Dutch tax authorities' international tax certainty team (Behandelteam IFZ). An anonymised summary of every ruling issued is published.
What if the Netherlands and the other country assess the price differently?
Then double taxation can arise. To resolve it there are the mutual agreement procedure in most tax treaties, the EU Arbitration Convention and the Dutch Act on tax arbitration.
Charges between your Dutch BV and the group? Tell us what is charged and by whom.
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