globaltaxnews.ey.comSign up for tax alert emailsPrintDownload

24 January 2023

The Netherlands issues favorable Decree clarifying application of transfer pricing anti-mismatch rules for asset transfers to Dutch corporate taxpayer through contributions and distributions

  • Effective as of 1 January 2022, legislation was implemented in the Dutch Corporate Income Tax Act 1969 (CITA) to end unilateral downward transfer pricing adjustments.

  • Specifically, article 8bd CITA was introduced, preventing double non-taxation due to a valuation difference between jurisdictions in situations involving certain capital transactions such as contributions or distributions.

  • On 24 January 2023, the Dutch State Secretary of Finance published a Decree clarifying the application and scope of article 8bd, paragraph 1 CITA.

Executive summary

The transfer pricing anti-mismatch rules as set forth in articles 8ba to 8bd and 35 CITA end unilateral downward transfer pricing adjustments (i.e., in situations where no corresponding upward adjustment is recognized at the level of the (foreign) counterparty). Article 8bd, paragraph 1 CITA specifically prevents double non-taxation due to a valuation difference between jurisdictions in certain situations.

Based on the legislative text, in certain situations such as those whereby a tax-exempt entity, or an entity that resides in a jurisdiction in which it is not subject to a profit tax, contributes or distributes an asset to a Dutch corporate taxpayer, article 8bd, paragraph 1 CITA could apply, even if there is no difference in the valuation of that asset.

On 24 January 2023, the Dutch State Secretary of Finance published a Decree clarifying the scope and application of article 8bd, paragraph 1 CITA in the case of, among other transactions, contributions or distributions of an asset to a Dutch corporate taxpayer.

Detailed discussion

The application of article 8bd, paragraph 1 CITA has the effect that if a Dutch corporate taxpayer acquires an asset by means of, for example, a capital contribution by an affiliated entity that is subjectively exempt from a profit tax or resides in a jurisdiction in which it is not subject to a profit tax, the Dutch corporate taxpayer must, based on a literal reading of the law, record the acquired asset at nil for Dutch tax purposes.

This newly issued Decree clarifies the scope and application in such cases. In particular, the State Secretary of Finance does not consider the abovementioned application and scope of article 8bd, paragraph 1 CITA appropriate and clarifies that the Dutch tax inspector will therefore apply article 8bd, paragraph 1 CITA as follows:

If a Dutch taxpayer acquires an asset by means of a capital contribution from an affiliated entity that is subjectively exempt from a profit tax or resides in a jurisdiction in which the entity is not subject to a profit tax, article 8bd, paragraph 1 CITA does not apply if for both the legal form of the capital contribution, and in the annual financial statements of the transferor and the Dutch taxpayer, the fair market value is applied to the capital contribution. The Decree clarifies that such financial statements should be prepared under Dutch law (Book 2, title 9 of the Civil Code) or similar foreign regulations.

  • The above similarly applies to the transfer of an asset to the Dutch corporate taxpayer by means of a profit distribution, return of paid-up capital, liquidation distribution, or a similar legal act.

    _________________________________________

    For additional information with respect to this Alert, please contact the following:

    Ernst & Young Belastingadviseurs LLP, International Tax and Transaction Services, Amsterdam

    Dirk Stalenhoef | dirk.stalenhoef@nl.ey.com

  • Eric Westerburgen | eric.westerburgen@nl.ey.com

    Ernst & Young Belastingadviseurs LLP, International Tax and Transaction Services, Rotterdam

    Ernst & Young LLP (United States), Netherlands Tax Desk, New York

    Dirk-Jan (DJ) Sloof | dirkjan.sloof@ey.com

  • Martijn Mulder | martijn.mulder2@ey.com

  • Rodin Prinsen | rodin.prinsen1@ey.com

  • Özlem Kiliç | oezlem.kilic1@ey.com

  • Bas van Stigt | bas.van.stigt1@ey.com

    Ernst & Young LLP (United States), Netherlands Tax Desk, Chicago

    Sebastiaan Boers | sebastiaan.boers1@ey.com

  • Daan Hoogwegt | daan.hoogwegt1@ey.com

     Ernst & Young LLP (United States), Netherlands Tax Desk, San Jose/San Francisco

    Job Grondhout | job.grondhout@ey.com

  • Laura Katsma | laura.katsma2@ey.com

  • Yarikh de Jongh | yarikh.de.jongh2@ey.com

    Ernst & Young Tax Services Limited (Hong Kong), Netherlands Tax Desk, Hong Kong

    Ernst & Young (China) Advisory Limited (China Mainland), Netherlands/EMEA Tax Desk, Shanghai

    Ernst & Young (China) Advisory Limited (China Mainland), Netherlands/EMEA Tax Desk, Beijing

    EY Corporate Advisors Pte Ltd (Singapore), Netherlands/EMEA Tax Desk, Singapore

    Ernst & Young LLP (United Kingdom), Netherlands Tax Desk, London

    Hemmo-Jan Clevering | hemmo-jan.clevering1@uk.ey.com

  • Ernst & Young Tax Co (Japan), Netherlands/EMEA Tax Desk, Tokyo

    Document ID: 2023-5100

     
     

    The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

     

    Copyright © 2024, Ernst & Young LLP.

     

    All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

     

    Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

     

    "EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

     

    Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.

     


    Cookie Settings

    This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or ey.com. Please refer to the privacy notice/policy on these sites for more information.


    Yes, I accept         Find out more