Netherlands Advances Legislation to Substantially Increase Transfer Pricing Documentation Penalties
On April 18, 2017, the Dutch lower house (House of Representatives) of Parliament adopted legislation (Bill No. 34651 and proposed Amendment No. 9) that would implement EU Directive 2016/881 (the “Directive) on automatic exchange of CbC reporting information among EU member states, and increase the maximum documentation penalties. However, proposals that would make CbC reporting public and lower the reporting threshold from €750 million to €40 million were not adopted by the House of Representatives.
The legislation is being considered by the Dutch upper house, and if enacted, would apply to fiscal years that begin on or after January 1, 2016.
On January 17, 2017, the Dutch Finance Secretary submitted Bill No. 34651 to Parliament to implement the Directive. See also the Explanatory Report. The bill would amend the Dutch Law on International Assistance in the Field of Taxation (“LIA”) and the Corporation Tax Act (CTA).
The Directive requires EU member states to automatically exchange CbC reports with any other EU member state in which one or more constituent entities of the MNE group are either tax resident or subject to tax with respect to a business carried out through a permanent establishment (PE). Bill No. 34651 proposes to implement this provision by adding a new Article 6e to the LIA. According to the new Article, the Netherlands will provide the CbC report within 15 months after the last day of the group’s reportable year (18 months for the first reporting period commencing on or after January 1, 2016). The legal basis for the automatic exchange of CbC reports would be the OECD Convention on Mutual Administrative Assistance in Tax Matters, a bilateral Dutch tax treaty, or a Dutch tax information exchange agreement (TIEA).
Bill No. 34651 proposes to amend the CTA by allowing a surrogate parent entity to submit the CbC report to the tax authorities in the member state where it is a tax resident. The bill also includes a notification requirement (in addition to the existing obligation under the CTA) for a Dutch tax resident group entity if the ultimate parent company does not provide that entity with the information necessary to complete the report. Finally, the bill recognizes the possibility of additional legislation with respect to the form and content of notifications, and extends the penalty provision for notification obligations.
Proposed Amendment No. 9 would increase the maximum penalties for violation of the new transfer pricing documentation requirements – including for CbC reporting notifications – from €20,500 to €820,000. This measure was adopted by the House of Representatives on April 18th.
Proposed Amendment No. 10, which was not adopted by the House of Representatives, would have required Dutch taxpayers to publish their CbC report in the commercial trade register eight days after filing it with the Dutch tax authorities.
Proposed Amendment No. 11, which was not was adopted by the House of Representatives, would have reduced the current CbC reporting threshold in the Netherlands from €750 million to €40 million.