Secondly, the State Secretary has removed the paragraph that explicitly referred to taxpayers having the option to obtain advance certainty regarding whether an activity should be regarded as an intercompany service or as an activity performed in the capacity of a shareholder. Firstly, it extends the provisions that applied to “contract research activities” from the previous version of the Decree to include “contract manufacturing activities”. The New Decree contains a few changes regarding intercompany services. Intercompany services do not include activities that are performed in the capacity of a shareholder. It would have been helpful if the New Decree had provided concrete guidance on the most common challenges.Īccording to the Guidelines, an intercompany service has been rendered when an activity is performed for one or more group members by another group member and the activity provides a respective group member with economic or commercial value, for which the latter group member would normally be willing to pay.

The challenge for taxpayers lies in finding relevant third-party data to substantiate their position. This addition to the New Decree is not groundbreaking, because taxpayers must always be able to demonstrate that the terms of their intercompany transactions are similar to what comparable unrelated entities would agree on under comparable circumstances. If the taxpayers have received NOW relief and wish to modify the terms of their intercompany transactions accordingly, they must demonstrate that comparable unrelated entities would agree on a comparable change under comparable circumstances. According to the New Decree, relief measures such as this could impact the terms that parties agree on in their intercompany transactions, including the price. The NOW was intended to help employers to continue paying their workers’ wages.

The Dutch government introduced the NOW as a Covid relief measure in 2020. Allowing a lower cost base for remunerating activities in the Netherlands could potentially result in a higher tax base in the foreign counterparty country. If a company incurs higher production expenses for using more sustainable raw materials and receives a subsidy for the additional cost, no mark-up should be applied on the subsidised costs. The New Decree provides an example that refers to a subsidy for using more expensive but sustainable raw materials. According to the New Decree, subsidies should be excluded from the cost base if there is a direct relationship between the subsidy and the supply of the good or service and where the subsidy was granted through an allowance for the costs. Where the arm's length price consists of a remuneration based on cost, the question can arise whether subsidies should be excluded from the cost base.

In this News Update, our transfer pricing experts reflect on the most important changes that the New Decree contains. The main changes compared with the previous Decree of 22 April 2018 include reference to the impact of government’s COVID-19 relief measures (known as ' NOW'), minor changes to the guidance on intercompany services, a new paragraph on intermediate financial services companies, new guidance on financial transactions and general alignment with the wording of the new OECD Transfer Pricing Guidelines (' Guidelines') that were issued in January 2022. On 1 July 2022, the Dutch State Secretary published the long-awaited updated Dutch Transfer Pricing Decree (the ' New Decree').

Intercompany transaction definition