National Report The Netherlands
Robert Jan Koopman (Judge Hoge Raad der Nederlanden) and Ramon Dwarkasing
(Researcher Tilburg University)
Part A: National concepts
1. General rule on the burden of proof
In Sweden like many other countries, the general rule concerning the division of the burden of
proof is that the tax administration has to prove the income-side and that the taxpayer has to
prove the cost-side. This rule has been established in tax practice and is based on the idea that
each party must provide the evidence that is easiest for it to gather. Usually, it is easier for the
tax administration to prove that income has been received and for the taxpayer to prove that
costs have been made than the other way around.
Question: Does such a general rule exist in your legal system? Is it based on the law or on tax
practice? If such a general rule does not exist, how is the burden of proof allocated? Do
different rules apply for proceedings in the tax administration, the tax courts or the criminal
courts?
Answer:
As for the general rule on the burden of proof, the situation in the Netherlands seems to be the
same as in Sweden. The general rule, established in case-law, is that the tax administration
has to prove the income-side and that the taxpayer has to prove the cost-side. This case-law
rests on the „fair allocation of the burden of proof‟ that tax courts use as basic principal for
their decisions on matters of proof. This allocation of the burden of proof is often summarized
as: if you claim a fact, you have to prove it (in Dutch: “wie eist, bewijst” in Latin: semper
necessitas probandi incumbit ei qui agit).
The rules in the tax administration and before the tax courts do not differ. In fact, the rules on
the burden of proof are seen as methods for courts to pass a judgement in cases where the
facts remain uncertain. The rules about the allocation of the burden of proof are seen as
nothing more than rules about the allocation of risk, they answer the question who should
bear the consequences of the uncertainty about a factual claim. Nevertheless these rules,
designed for court cases, do cast their shadow upon preceding administrative proceedings.
In criminal procedures the situation is completely different. There is, at least in theory, no
division of the burden of proof between the prosecutor and the accused. The accused is the
object of an inquiry. He has no formal responsibility for the establishment of the facts.
Furthermore, the presumptio innocentiae demands that the burden of proof sets solely on the
prosecution and that any doubt about the facts should benefit the accused.
2. Variations on the general rule depending on time period or if it is claimed that the
taxpayer has submitted false/incorrect information
In Sweden, the general rule is the one mentioned above. This rule is applicable only in the
ordinary tax procedure. The ordinary tax procedure lasts for a period of one year after the tax
year (in other words, two years after the income year). After that period the tax administration
has to make its decision according to the special rules of additional taxation. In case of an
additional tax assessment the tax administration has to prove that the taxpayer has provided
incorrect/false information (or omitted or failed to provide information that he is obliged to
provide). Accordingly, during the tax procedure with regard to the additional tax assessment
the tax administration bears the burden of proof for both the income- and the cost-side. The
purpose of this rule is to provide legal certainty/security when a tax decision is made after the
ordinary period of time has lapsed.
Question: In your country, do different rules of burden of proof apply depending on the period
of time in which the decision on the tax dispute is being made? Where does the burden of
proof lie where a tax penalty is being imposed?
Answer:
In the Netherlands the period of time in which the decision on the tax dispute is being made,
generally does not influence the burden of proof as such. Nevertheless, if the tax
administration wants to issue an additional tax assessment, it has to proof (if contested) that
the special conditions for such an additional assessment are met. For instance, in certain cases
an additional assessment can only be issued on the basis of so called new facts, facts that were
only discovered after the original assessment. If contested by the taxpayer, the administration
generally has to establish that at the time of the original assessment it did not and could not
have known the facts on which the additional assessment is based. But when it comes to
establishing the amount of income, there are no differences in the allocation of the burden of
proof between normal assessments and additional assessments.
Tax penalties are seen as „criminal‟ in the sense of article 6 of the ECHR. Therefore the
presumption of innocence applies and the burden of proof rests upon the tax administration.
3. Burden of proof regarding discretionary decisions on tax issues or regarding
estimated assessments
In Sweden, tax assessments may be made by discretionary decisions or by estimates, in
situations where the taxpayer has failed to fulfil his bookkeeping obligations. In such cases
the tax administration has to show that its estimate was “probable”. If the estimated
assessment is probable, then the burden of proof shifts to the taxpayer and he has to provide
evidence that the estimate is incorrect.
Question: How is the burden of proof allocated in discretionary decisions on tax assessments
or for estimates in your country? Is the burden of proof different if a tax penalty within such a
tax assessment is being imposed?
Answer:
If the taxpayer has failed to fill in the required tax return, has failed to answer specific
questions from the tax administration or has failed to fulfil his bookkeeping obligations, statue
law holds that the burden of proof rests solely on the taxpayer. This is called, somewhat
inaccurately: „omkering van de bewijslast‟ („reversal of the burden of proof‟). The tax
administration may assess the tax debt using estimations, which have to be fair. These
estimated assessments will be held correct as long as the taxpayer has not proven beyond
reasonable doubt that, and to what extent, they are wrong. This reversal of the burden of proof
is widely considered a probandum diabolicum.
If a tax penalty is raised in relation to such an estimated assessment, the burden of proof
considering the facts that constitute the offence for which the penalty is raised, remains with
the tax authorities. However, once the authorities have proven that the taxpayer has
committed the offence, the amount of the penalty may be calculated as a percentage of the
estimated assessment.
4. Variations in burden of proof with respect to tax havens, etc.
As follows from the general rule in Sweden, each party must prove whatever is easiest for that
party. In practice, when it is difficult for the tax administration to obtain the relevant
information, for example with respect to tax havens, etc., the burden of proof is shifted to the
taxpayer. In such cases, the burden of proof lies on the taxpayer for both income and costs.
Question: How is the burden of proof allocated where a tax case contains information that is
difficult or impossible for the tax administration to investigate (e.g. where a tax haven is
involved)?
Answer:
In the Netherlands the burden of proof can shift to the taxpayer if he refuses to answer
specific questions from the tax administration concerning his own tax position. Specially for
situations in which a tax haven is involved article 47a of the Algemene wet inzake
rijksbelastingen (General act on national taxes) stipulates that a Dutch company is obliged to
give the tax administration on request information that rests with an associated company in a
country with which the Netherlands does not have an agreement on the exchange of tax
information. Failure to comply with this obligation results in a reversal of the burden of proof
to the taxpayer, as mentioned in the answer to question 3. In recent years, the Netherlands
signed Tax Information Exchange Agreements (TIEA‟s) with most (former) tax havens. The
practical importance of art. 47a has diminished correspondingly.
5. Level of the burden of proof
In Sweden, as mentioned above, the general rule within the ordinary time period for taxation
is that the tax administration bears the burden of proof for income and the taxpayer for costs.
The general rule regarding evidentiary requirements is that each party has to demonstrate that
the income/cost is “probable”/”plausible”.
Question: Does your country have a general rule regarding evidentiary requirements? If so,
what are the requirements (level of proof)? Is it based on the law or on practice? Do different
rules apply to the tax administration, the tax courts and the criminal courts? And are there
situations in which the burden of proof is aggravated, for instance when the taxpayer has not
fulfilled his bookkeeping obligations?
Answer:
In the tax law of the Netherlands a fact is proven if the judge considers it “probable” (in
Dutch: “aannemelijk”). A fact is probable when it‟s more likely that it did take place, than
that it didn‟t take place. This rule is established in the case law of the tax courts. The burden
of proof is aggravated if certain information requirements are not fulfilled. (See the reversal of
the burden of proof, mentioned in the answer to question 3).
6. Evidentiary requirements in discretionary/estimated tax assessments
See question no. 4 above on the burden of proof in discretionary/estimated tax assessments.
The tax administration has to show that its estimate is “probable”. If the discretionary tax
assessment is combined with a tax penalty, which is often the case, the tax administration also
has to show that the tax penalty is “probable”. The tax penalty in such cases so to speak
follows automatically upon the discretionary tax assessment.
If the tax assessment is made according to the rules on additional taxation (two years after the
tax year) the tax administration has to “prove” that the information is false/incorrect.
Question: What are the evidentiary requirements (level of proof) for discretionary/estimated
tax assessments? Are the evidentiary requirements the same for tax penalties in such cases?
Are the evidentiary requirements different if the tax assessments are being made according to
the rules for additional tax assessments (i.e. do such rules exist in your country)?
Answer:
In the Netherlands special rules for discretionary/estimated tax assessments do not exist. This
does not rule out that in some cases the tax authorities have to resort to estimations, for
instance in cases where the taxpayer refuses to fill in a tax return. Then, the reversal of the
burden of proof, mentioned in the answer to question 3, comes into play. In that case the tax
authorities are still obliged to base the tax assessment on a fair estimation.
A tax penalty combined with such an estimated tax assessment, must comply with the
presumption of innocence. See the answer to question 3.
7. Evidentiary requirements depending on exchange of information, tax havens, etc.
From question no. 4 above, it follows that if it is difficult or impossible for the tax
administration to investigate situations having to do with tax havens, the burden of proof may
shift. More and more countries have entered into information exchange agreements with tax
havens which could affect the burden and level of proof.
Question: Are the evidentiary requirements affected by the possibility for the tax
administration to investigate circumstances in a case e.g. by means of exchange of
information with a country involved?
Answer:
See the answer to question 4.
8. Different evidentiary requirements for different types of taxes
In Sweden, in certain cases, the evidentiary requirements seem to differ for different types of
taxes in the same case. For example, for false invoices of subcontractors, different types of
taxes are involved: income tax, VAT and social security fees. In Sweden, it seems as though
different evidentiary requirements are applicable for these different types of taxes.
Question: Are different evidentiary requirements applicable in your country for different types
of taxes?
Answer:
In general, there are no different evidentiary requirements applicable in the Netherlands for
different types of taxes. Nevertheless, in some tax laws specific evidentiary rules are given for
certain cases. For instance the law on VAT demands for the deductibility of costs in certain
cases the possession of an invoice. And the law on income tax demands proof beyond
reasonable doubt that a company car has not been used for private purposes if the taxpayer
wants to avoid to be taxed for income in kind.
9. General rule on evaluation of evidence and the limitations to such a rule
In Sweden there exists the principle of a free assessment of evidence. A consequence of this is
that the evidence in a case is also freely evaluated by the tax administration and ultimately by
the tax court. The principle of the free assessment and evaluation of evidence in tax matters is
statutory.
Question: Is the evaluation of evidence free or is it in any way limited? Is it statutory or is it
based on practice?
Answer:
In the Netherlands, the assessment of evidence is left to the tax courts. The principle of free
assessment of evidence is based on case law. The Hoge Raad (the Court of Cassation)
considers the evaluation of evidence as a matter of fact (and not a matter of law) that is left to
the (lower) courts to decide upon.
Part B:
Burden of Proof in Anti-Abuse Provisions
10. General anti-abuse provision
Question: Is there a general anti-abuse provision in your (procedural) tax law and which party
bears the burden of proof under this provision?
Please illustrate the actual way this provision is given form: what does it provide for and to
what extent is the term “anti-abuse” specified? In case there is no such provision in your
national tax law, is reference made to anti-abuse provisions in other fields of law? An
example of an anti-abuse provision or principle that originates from civil law is the principle
of good faith (principle of abuse of law). Please explain as well the actual way the burden of
proof is given form. Some jurisdictions have established a two-step mechanism, e.g. Germany
in Sec. 42 General Tax Code: It is up to the tax authority to provide probable cause - it has to
be substantiated that the taxpayer‟s legal arrangement is inappropriate. The taxpayer has then
subsequently to give proof to the contrary, i.e. to substantiate that the rationale for his
arrangement is not tax related but e.g. based on economic reasons.
Answer:
There is a statutory as well as a case law based general anti-abuse provision. The conditions
for their application are roughly the same. The statutory provision has led a comatose life for
the last few decades, as this provision has not been invoked by the tax administration since
1987. The case law based provision is used more often.
It‟s called the fraus legis-doctrine and it originates from civil law. If this doctrine is applied
the facts of a certain fiscal construction are (partly) ignored or substituted for facts that lead to
a level of taxation that is in line with the object and purpose of the law. Conditions for the
application of this doctrine are (1) that the fiscal construction leads to a level of taxation that
is not in accordance with the purpose of the law, and (2) that the taxpayer entered this
construction with the deciding aim to evade (the proper level of) taxation. The question
whether the first condition is met, is a matter of law, on which the rules of juridical proof do
not apply. The second condition is a matter of fact. The burden of proof lies with the tax
authorities.
11. Alternative or supplementary approaches
Question: Are there any other (alternative or supplementary) approaches established in
practice or by case-law in this regard and do these comply with the general principle of the
division of burden of proof in your country?
Examples of such other ways may be the economic approach, the look-through approach or
substance over form approach, all of which deal with the relation between legal form and
economic substance. E.g. in Sweden, an anti-abuse provision is part of Swedish tax law, but a
look-through approach established in practice is applied in this regard as well. If your
jurisdiction recognizes both anti-abuse provisions and other approaches, is there a priority in
application? With regard to the division of burden of proof, are there any deviations from the
general principle recognized in many jurisdictions that each party has to prove the facts that
are advantageous for them?
Answer:
The fraus legis doctrine functions as an ultimum remedium. It can only be invoked if other
(normal) methods of deciding a case do not come to a conclusion that is in accordance with
the purpose of the law. Sometimes, the facts presented by a taxpayer who entered a fiscal
construction are fictitious. He may claim to have bought shares or other assets, but in fact
neither he nor the pretended seller really meant to come to an agreement about the delivery of
the property of these assets. These fictitious acts are of course not recognized in civil or in
fiscal law. When it comes to proof, usually the taxpayer who presents the court with a written
contract has given an initial proof, that can be rebutted by the tax authorities.
An (economical) form over (juridical) substance approach is sometimes applied, but courts
use this approach when interpreting the law, so there are no matters of proof involved.
12. Special anti-abuse provisions
Question: Are there special anti-abuse provisions dealing with the burden of proof in
particular tax law areas and what exact requirements does the taxpayer have to fulfil? Is the
required level of proof higher compared to the general provision or principle?
Typically, special anti-abuse provisions can be found in the context of cross-border
situations/international transactions. If such provisions exist in your jurisdiction, have there
been any reasons given by the legislator for dealing differently with these situations, e.g. that
the ex officio discovery of the facts is particularly difficult for the tax authorities and so the
burden may be shifted due to the fact that the disclosure of facts is more within the sphere of
the taxpayer than within the sphere of the tax authority? Please elaborate on whether there are,
according to that reasoning, some provisions in which a situation is deemed to be abusive
unless proven otherwise by the taxpayer.
Usually, special anti-abuse provisions also set special requirements which may include the
disclosure of certain documents, proof of the appropriateness of certain legal arrangements,
the compatibility of intra-group transfer prices with the arm‟s length principle, etc. Are there
any provisions that set the requirements or the level of proof so high that producing proof to
the contrary is virtually impossible?
Answer:
There are many special (sub)provisions in the statue law of the Netherlands that deal with the
burden of proof in specific circumstances. Most of these (sub)provisions lay a heavier burden
of proof on the taxpayer than the general rules would imply. It could be argued that all these
(sub)provisions are anti-abuse measures, as they are aimed against unintended use of the
(main) provision.
When it comes to cross-border transfer prices, the main principle is that it is up to the tax
administration to proof that dealings with an associated company have not been at arm‟s
length. However it can be argued that the situation of a company receiving a price paid by an
associated company abroad, should be distinguished from the situation of a company paying a
price to an associated company abroad. In the former situation, the main principle can be
upheld, but in the latter situation, some writers1 argue that it is up to the company that claims
deduction of costs to prove that the price was agreed upon and paid in the interest of the
company and not (also) in the interest of it‟s shareholder. This view however doesn‟t seem
to be in line with rulings of the supreme court of the Netherlands. Specifically where it has
ruled that once it has been established that in return for the payment the company received
actual goods or services, it is up to the tax administration to proof that the price was not at
arm‟s length2.
In 2002 a provision similar to article 9 of the OECD Model Convention was incorporated in
article 8b of the Corporation Income Tax (Vennootschapsbelasting) (from hereon: CITA). In
addition to art. 9 of the OECD Convention this provision contains a third paragraph that
stipulates that associated entities must include in their records information that shows in
1
2
For example E.A. Visser, Verrekenprijzen: een drieluik, Kluwer Deventer, 2005, p. 81.
For example Hoge Raad 25 january 1995, BNB 1995/76.
which way their transfer prices were established. This information must show whether
conditions were made to which third parties would have agreed. Strictly speaking, this
provision does not concern the allocation of proof. The tax administration still has to proof
that the agreed price is not at arm‟s length. Yet, in practice, the third paragraph strengthens
the position of the tax administration significantly because if the company fails to comply
with the administrative requirements of this paragraph, the before mentioned diabolic measure
of “omkering van de bewijslast” could become effective. See the answer to question 3 about
the “omkering van de bewijslast”. See the answer to question 21 for a more elaborate
discussion on art. 8b CITA.
13. Competent authority
Question: Which body (tax authority, independent institution or tax court) may decide if the
required level of proof is met? Are there different levels of proof that e.g. the tax authority or
the taxpayer have to fulfil?
In some jurisdictions, the decision whether the required level of proof is met will be - at first
instance - up to the tax authority. In France, however, an independent institution (consultative
committee, comité consultative pour le repression des abus de droit) decides whether certain
arrangements have to be considered abusive. In other jurisdictions, for instance in Sweden, it
is only up to the court to decide whether the required level of proof is met. With regard to the
level of proof imposed on the tax authority, there might be deviations from the requirements
set on taxpayers. Different levels of the burden of proof may be imposed, for instance, on the
parties by means of the economic substance test (proof that a legal arrangement was made not
only for tax-related reasons): while the tax authorities may only be required to show probable
cause, the taxpayer may be required to prove both economic profit potential and a subjective
business purpose.
Answer:
In the Netherlands, it is only up to the courts to decide whether the required level of proof is
met. However, in pre-trial proceedings the tax administration decides. These decisions are
subject to a full review by the courts, so in the end the courts decide. In general, there is no
difference in the level of proof demanded from the taxpayer and the tax administration.
Nevertheless, some specific provisions in statue law may in fact lead to a heavier burden of
proof for the taxpayer. See for instance article 8b, paragraph 3, CITA, mentioned in the
answer to question 12. In fact, this paragraph forces the taxpayer to gather, safe and disclose
written evidence of the arm‟s length nature of its transfer prices.
14. Judicial review
Question: Is the decision of the above authority or body subject to a full (or a partial) judicial
review and are there different levels of burden of proof in the different stages of the judicial
proceedings?
Please explain the extent to which the decision of the body that is in charge of deciding
whether the required level of proof has been met is binding. In case the decision is subject to a
judicial review, is the court bound to a certain extent by the prior decision (e.g. that the
decision will only undergo a plausibility check)? With regard to the different stages of judicial
proceedings, it should be elaborated on, for instance, whether the tax authority may impose a
different level of burden of proof on the taxpayer than a tax court does. May the taxpayer be
obliged to present clear and convincing evidence in tax authority proceedings, while a
preponderance of the evidence is a sufficient standard before tax courts?
Answer: see the answer to question 13.
15. Case law
Question: Are there any court judgments in your jurisdiction concerning the burden of proof
with regard to:
a) the situations in which (special) anti-abuse provisions may be applied to the taxpayer?
b) the requirements that may be imposed on the taxpayer?
c) the compatibility of burden-of-proof provisions in anti-abuse matters with your
country’s Constitution or EU law?
In the answer to these questions, the focus should be in particular on the limits set by the
courts, e.g. that the application of certain provisions is within the discretion of the tax
authority, but that tax officers, however, have to comply with the principles of proportionality
and reasonableness. A special point at issue may be the challenge of anti-abuse provisions
(especially for general anti-abuse rules) on grounds of not complying with the principle of
legal certainty or, on the other hand, the justification as the fulfilment of the constitutional
duty to safeguard the principle of equality of tax burdens.
Answer:
a) See for a description of the general fraus legis doctrine the answers to question 10 and
11, and for the special provision for cross border transfer pricing the answer to
question 12.
b) The general fraus legis doctrine doesn‟t impose any requirements on the taxpayer.
Article 8b, CITA imposes on the taxpayer the requirement to include in its records
information that shows in which way its transfer prices were established.
c) In the Netherlands, courts cannot test written laws against the constitution. There is no
constitutional court in the Netherlands. As a result of this, there is no case law and
hardly any literature about the compatibility of burden-of-proof provisions in antiabuse matters with the constitution. Also, the compatibility of these provisions with
EU Law is not an intensely debated issue (see also question 16). There is, however, a
long and ongoing debate about the way estimated tax assessments and the omkering
van de bewijslast (see the answer to question 3) influence the height of a tax penalty.
This discussion does not focus on the Constitution or EU Law, but on the ECHR and
article 6 in particular.
Part C: The burden of proof and European tax law
16. EC law and the reversal of the burden of proof
In the famous Leur-Bloem case (ECJ 17 July 1997, case C-28/95) the ECJ ruled as follows:
“Article 11 of the Directive is to be interpreted as meaning that in determining whether the
planned operation has as its principal objective or as one of its principal objectives tax evasion
or tax avoidance, the competent national authorities must carry out a general examination of
the operation in each particular case. Such an examination must be open to judicial review.
Under Article 11(1)(a) of the Directive, the Member States may stipulate that the fact that the
planned operation is not carried out for valid commercial reasons constitutes a presumption of
tax evasion or tax avoidance. It is for the Member States, observing the principle of
proportionality, to determine the internal procedures necessary for this purpose. However, the
laying down of a general rule automatically excluding certain categories of operations from
the tax advantage, on the basis of criteria such as those mentioned in the second answer under
(a), whether or not there is actually tax evasion or tax avoidance, would go further than is
necessary for preventing such tax evasion or such tax avoidance and would undermine the
aim pursued by the Directive.”
In general the outcome of this ruling can be described as follows:
1. Member States are not allowed to have provisions in their national tax laws that deem
certain situations to have occurred primarily as the result of tax evasion or tax
avoidance, while at the same time allowing the taxpayer to provide proof to the
contrary. This reversal of the burden of proof to the detriment of the taxpayer violates
EC law.
2. The tax administration must prove that the motive of a transaction is tax avoidance or
tax evasion on a case-by-case basis.
Questions
1.
2.
3.
Could you give an impression how the Leur-Bloem judgment was viewed in your
country by lawyers, the judiciary and the government?
Did the decision lead to any significant changes in legislation?
Are there provisions in the national tax legislation that do not yet meet the
standards in the Leur-Bloem judgment?
Answer:
1. As the Leur-Bloem judgement originated from prejudicial questions asked by a tax
court from the Netherlands (the court of appeal of Amsterdam) it will not come as a
surprise that in Holland this judgement did not go by unnoticed. Comments were
mainly positive and summarised the meaning of the judgement in roughly the same
way as the description given in the introduction to this question.
2. In reaction to the Leur-Bloem judgement the Ministry of Finance first issued a policy
document stating that the requirement that the acquiring company must carry on the
business will no longer be upheld. As of 2001, new legislation came into force. This
new legislation does not require a preliminary approval from the tax authorities in case
of a share merger. This new legislation (article 3.55, paragraph 4, sub b, of the
Personal income tax Act 2001) still contains a reversal of the burden of proof similar
to what is described in the introduction to this question. It is uncertain whether this
new legislation is in accordance with Article 11(1)(a) of the Directive. Literature on
this matter is divided.
3. The Modehuis A. Zwijnenburg-ruling of the ECJ (may 20th 2010, C-352/08) shows
that at least the way in which the tax authorities of the Netherlands enforce national
legislation cannot be above all criticism. In this case the authorities wanted to use the
anti-avoidance clause in a case where the taxpayer wanted to avoid transaction tax, a
tax that does not come within the scope of application of the directive. The ECJ ruled
that the anti-avoidance clause could not be used.
17. Reversal of the burden of proof and time limits
Article 14, paragraph 4 of the Netherlands Corporate Income Tax Act 1969 contains a specific
provision concerning the possible abuse of merger facilities with regard to an asset merger. It
provides that if the shares in the receiving company that were received on the occasion of the
transfer of the assets to the receiving company are being sold within three years after the
merger, the merger facilities are retroactively withdrawn unless the taxpayer proves that the
transaction was carried out for sound business reasons.
Question: Does the tax legislation of your country contain similar provisions and how do you
assess such a provision in the light of EU (tax) law?
Answer:
It is still uncertain whether article 14, paragraph 4 of the Netherlands Corporate Income Tax
Act 1969 is in accordance with the Directive. Literature on this matter is divided.
18. Reversal of the burden of proof and transactions with non-domestic entities
Article 13b, paragraph 4 of the Netherlands Income Tax Act 1969 contains a specific
provision to combat abuse of tax law where an intra-group loan is written down. It provides
that if the loan that was written down for Netherlands tax purposes is sold to a company
established outside the Netherlands or to a natural person resident outside the Netherlands, it
is deemed to be a transaction with a foreign company belonging to the group or with a natural
person having a substantial interest in the group, unless the taxpayer proves the contrary.
The background of this provision is the situation that the written-down loan leaves the
Netherlands tax jurisdiction even though it is not clear whether or not the loan was sold to an
affiliated group company or a natural person. If the loan is sold to a third party, the writing
down of the loan definitely ends up as a final tax loss that stays in the Netherlands. But if the
loan stays „within the group‟ the writing down of the loan is recaptured.
Question: Does your national tax legislation contain a more or less similar provision and what
is your opinion of the provision in the light of EU law requirements?
Answer:
The introduction to this question described the situation in the Netherlands. Some writers
have argued that this provision amounts to a restriction that is not in accordance with the EU
Treaty3.
19. Donations to foreign charitable institutions and the burden of proof
In the Persche case (ECJ 27 January 2009, case C-318/07) the ECJ ruled as follows: “Article
56 EC precludes legislation of a Member State by virtue of which, as regards gifts made to
bodies recognised as having charitable status, the benefit of a deduction for tax purposes is
allowed only in respect of gifts made to bodies established in that Member State, without any
possibility for the taxpayer to show that a gift made to a body established in another Member
State satisfies the requirements imposed by that legislation for the grant of such a benefit.”
The deductibility of donations (in money or in kind) to foreign charitable institutions is a
highly debated topic in the light of EU developments (Community law). In this respect the
issue of the burden of proof is very relevant as taxpayers often have limited possibilities to
prove that the foreign institution is involved in charitable activities while the Member State is
far better equipped to investigate the contested activities.
Question: How do you view the taxpayer‟s obligation to provide the requested proof (as held
by the ECJ) and when does a reasonable division of the burden proof evolve into a situation in
which, after the taxpayer provides the initial proof, the burden shifts to the tax administration
to prove the nature of the activities of the foreign charitable institution?
Answer:
On may 18th 2010 the European Commission has requested the Netherlands to change its rule
that gifts, donations and inheritances to charities in the Netherlands and abroad can only
qualify for tax relief if the charities have registered themselves with the tax authorities of the
Netherlands. The Commission considers that this is unnecessarily restrictive, since it does not
allow for the possibility of tax relief in case the foreign charity has not registered itself in the
Netherlands. Nothing prevents the authorities from requiring the taxpayer to prove that the
conditions for tax relief have been met. The Commission therefore considers this registration
rule to be contrary to the free movement of capital. It is uncertain what the outcome of this
controversy will be.
20. The burden of proof and proportionality
In the recent SGI-case (ECJ 21 January 2010, case C-311/08) the ECJ ruled on profit
corrections regarding transactions between related companies in a cross-border situation. The
contested transactions implied the provision of a loan without taking any interest into
consideration and the payment of excessive management remunerations.
The Court held that it was proportional that the initial burden of proof, to demonstrate, on the
basis of objective and verifiable elements, that the transaction, or elements of the transaction,
represent an artificial arrangement lies with the tax administration.
The taxpayer is then to be given the opportunity, without being subject to undue
administrative constraints, to provide evidence of any commercial justification that may have
existed for that transaction. See also, paragraph 82 Thin Cap GLO (C-524/04) and paragraph
3
For instance J.A.R. van Eijsden and Q.W.J.C.H. Kok, Afgewaardeerde vorderingen (Written down receivables)
(FM nr. 124), p.blz. 49-50, Deventer: Kluwer 2007.
84 CFC and Dividend GLO (C-201/05). In the case at hand the taxpayer had a period of one
month, which could be extended, within which to establish that no unusual or gratuitous
advantage is involved. This seems to be reasonable.
This approach seems to be in line with Commission Paper COM(2007) 785 final concerning
anti-abuse regulations in the field of direct taxes – application in the EU and with regard to
third countries, page 5.
Question:
To what extent is the direct tax legislation and case law in your country in line with the
above-mentioned standards set by the ECJ?
Answer:
These standards seem to be in line with the general case law of the Supreme Court of the
Netherlands. The general notion that the initial burden of proof lies with the tax
administration, and that the taxpayer must be given reasonable opportunity to bring forward
counter-evidence is widely accepted in the Netherlands. Comments on this ruling suggest that
article 8b, paragraph 3, CITA is in line with this ruling4.
Part D: Burden of Proof in Cross-Border Situations: Transfer Pricing Aspects
21. The burden of proof between tax authorities and taxpayers
In some countries, the burden of proof may be reversed if the taxpayer is found not to have
acted in good faith, for example, by not cooperating or complying with reasonable
documentation requests or by filing false or misleading returns. In other countries, the burden
of proof lies only with the taxpayer.
In Italy tax assessments must be properly motivated and the burden of proof is with the tax
authorities (Art. 2967 Civil Code, which also regulates the burden of proof in the case of tax
assessments).
The application of this principle to transfer pricing means that the burden of proof that the
intercompany pricing is not at arm‟s length lies with the tax administration. However - upon
the notification of a tax assessment providing evidence that costs have not been incurred by
the taxpayer - the burden of proof shifts to the taxpayer, while the tax administration must
provide reasons supporting the assessment of an increase in taxable income.
Local tax offices tend to be very aggressive in challenging the deductibility of costs for
centralized services charged by non-resident companies to their Italian permanent
establishment or to their resident associated company. Tax assessments are usually based on
the view that such expenses are not inherent to the business activity carried on in Italy, which
implies the lack of any benefit to the taxpayer.
Question: the Netherlands: Who bears the burden, the tax administration or the taxpayer, of
proving that transfer pricing operations are at arm‟s length?
Answer:
4
For instance Vakstudie-Nieuws 2010/13.21.
In the Netherlands, the burden of proof generally lies with the tax authorities if the taxpayer
can present documents that support the assumption that the taxpayer‟s transfer prices are in
line with the arm‟s length principle. If the information provided is considered to contain
sufficient information regarding the arm‟s length nature of the transaction, it will be the
burden of the Dutch tax authorities to disprove that the prices are arm‟s length. After the
introduction of Article 8b CITA, the burden of proof was de facto shifted to the taxpayer in
cases where the tax payer does not maintain sufficient transfer pricing documentation.
Article 8b paragraph 3 CITA requires that associated enterprises must include in their
financial records information which supports the arm‟s length nature of the transfer prices
between associated enterprises.5 Art. 8b paragraph 3 CITA reads:
“The entities referred to in the first two paragraphs shall include in their administrations
information from which it is apparent in what manner the prices mentioned in these
paragraphs have been determined and from which it may be concluded whether conditions
have been agreed which would have been agreed between independent parties.The enterprises
indicated in the first and the second paragraph must include in their financial records
information from which it can be determined in what way the indicated transfer prices came
about and from which it can be determined whether conditions that would have been agreed to
by independent enterprises pursuant to economic dealings apply with respect to those transfer
prices.”
The third paragraph of Art. 8b CITA has no corresponding paragraph in the OECD Model
treaty. This third paragraph aims to shift effectively the burden of proof with respect to the
arm‟s length nature of the transfer price between associated enterprises to the taxpayer.
For the introduction of above mentioned Art. 8b CITA a bill was submitted to the parliament
on 08 October 2001. As written in the Technical Explanation, before the introduction of Art.
8b CITA the Dutch Corporate Income Tax Act did not contain an explicit statement regarding
the arm‟s length principle. According to the Ministry of Finance, this had led in international
context to criticism that within the Netherlands the application of the arm‟s length principle
was not sufficiently guaranteed within the Netherlands. In order to avoid long-term damage to
the position of the Netherlands as an international treaty partner, the Ministry of Finance
considered the implementation of the arm‟s length standard in the Dutch Corporate Income
Tax Act. Furthermore, the Technical Explanation provides:
“It is proposed to include in the Corporate Tax Act of 1969 the codification of the „arm‟s
length principle‟. With this codification it is acknowledged that the arm‟s length principle as
laid down in Art. 9 OECD Model Treaty applies within the Netherlands. With this it is also
aimed at achieving the result that the practical explanation of the Transfer Pricing Guidelines
for Multinational Enterprises and Tax Administrations (OECD Guidelines) provided in Art. 9
of the OECD Model Treaty apply in Dutch legal practice. In a number of areas, practice
5
The following is an informal translation of the full text of Art. 8b CITA:
1. If an entity, directly or indirectly, participates in the management or supervision of an entity, or participates in
the capital of an entity, and these entities have regarding their mutual legal relations agreed upon conditions that
deviate from the conditions that would have been agreed upon between independent parties, the profit of these
entities will be determined as if the previously mentioned conditions had been agreed upon.
2. Similarly, the first paragraph is also applicable if one person directly or indirectly participates in the capital of
both entities, or participates in the management or supervision of both entities.
3. The entities referred to in the first two paragraphs shall include in their administrations information from
which it is apparent in what manner the prices mentioned in these paragraphs have been determined and from
which it may be concluded whether conditions have been agreed which would have been agreed between
independent parties.
demands an explanation of the OECD Guidelines. The Transfer Pricing Decree of 30 March
2001 (IFZ2001/295) provides insight into the Dutch position and, where possible, removes
any unclear aspects. In this Decree, attention is also paid to the mutual agreement and
arbitrage procedures in order to resolve international double taxation that results from a
transfer pricing adjustment imposed by the Dutch tax authorities or one of the countries with
which the Netherlands has a treaty for the avoidance of double taxation.”
Reference is also made to the Court of Appeal decision of 20 June 2000 from which it would
appear that in the Netherlands there was insufficient clarity about the way in which the
Netherlands applied the OECD Guidelines. 6 The Deputy Minister of FinanceState Secretary
announced in conjunction with the legislative plans to incorporate the arm‟s length principle
into Dutch law, that he wished to look closely at the burden of proof within this context. In
the State Secretary‟shis opinion, a reasonable sharing of the burden of proof would presume
the taxpayer be able to substantiate the transfer price used. According to the Deputy Minister
of Finance, this pleads for an introduction of a clear documentation requirement. 7
If a taxpayer complies with the its documentation obligations, nothing is changed in the
allocation of the burden of proof as it existed before Section 8b CITA came into force. The
allocation of the burden of proof, however, is ultimately the prerogative of the tax court judge.
The transfer pricing documentation requirements are described in the third paragraph of Art.
8b CITA. The provision stipulates that taxpayers are required to include information in their
accounting records showing how their transfer prices have been established. Art. 8b of the
CITA refers to two main requirements. The information should show how transfer prices have
been established and the information should be sufficient to assess whether the transfer prices
were concluded under arm‟s length conditions.
However, Art. 8b does not disclose what type of information is sufficient to meet the transfer
pricing documentation requirements. The „accounting records‟ to which Art. 8b of the CITA
refers, relate to Art. 52 of the General act on national taxes. This article obliges taxpayers to
maintain adequate accounting records. Failure to maintain adequate accounting records could
result in a shift in the burden of proof to the taxpayer if the tax authorities adjust a taxpayer‟s
taxable income; the before mentioned „omkering van de bewijslast. (See the answer to
question 3..)
The Deputy Minister of Finance made reference to the OECD Guidelines for further
indications of what should be included in transfer pricing documentation:
- A description of the characteristics of the goods and services
- Analysis of activities performed (including assets used and risks incurred)
- Contractual terms and conditions; and
- Economic circumstances and company strategies
The transfer pricing documentation should be available when the taxpayer enters into a
transaction with an associated enterprise. When the tax authorities request this information
and the taxpayer does not provide it, the taxpayer will be granted a limited period of time
(mostly four weeks to three months, depending on the complexity of the transactions) to
submit the requested documentation.
6
7
Court of Appeal Decision of 20 June 2000, No. 96/3012, V-N 21 September 2000, at 3713.
Proceedings of the Second Chamber II 2000/01, 27505, No. 1, at 3,15 and 17
During the parliamentary proceedings, it was explicitly clarified that the taxpayer must show
that the correctness of the transfer price is „plausible‟; the taxpayer does not need tonot prove
the correctness outright. Reference was made explicitly to Chapter 1 of the OECD TP
Guidelines 1995. If the taxpayer does not provide the statutory required information, the
burden of proof with respect to the arm‟s length character of the prices will shift to the
taxpayer. During the parliamentary proceedings, iIt was also clarified during the
parliamentary proceedings, that the absence of an actual comparison with third-party prices
does not lead to a shifting of the burden of proof to the taxpayer, as long as the taxpayer is
able to provide the information to the tax authorities, which enables them to make the
comparison. 8
22. Set of documents
In recent years, OECD member countries and EU Member States have been adopting transfer
pricing documentation rules.
The OECD Guidelines are based on the prudent business management principle, which means
that the need for information should be balanced against the costs and the burden that the
taxpayer will bear in preparing or obtaining such documentation. The OECD Guidelines stress
that the tax authorities should take great care that the imposition of documentation
requirements will not impose disproportionately high costs and administrative burdens on
MNEs (multinational enterprises), which will have to obtain documentation from foreign
associated enterprises. The tax authorities should also refrain from requiring taxpayers to
engage in an exhaustive search for comparable data from uncontrolled transactions if the
taxpayer reasonably believes that no comparable data can be found or the efforts to find these
data would be disproportionately high in relation to the amounts at issue.
The main goal of the European Union Transfer Pricing Documentation (EU TDP) is to
maintain a balance between, on the one hand, the right of the tax authorities to obtain the
necessary information from taxpayers in order to assess whether transfer pricing is at arm‟s
length and, on the other hand, the compliance costs MNEs incur from complying with the
rules. The key reason for implementing the EU TPD was to significantly reduce the tax
compliance burden and complications that companies have to face when doing business with
associated enterprises in other EU Member States.
Italian tax law does not include any formal provisions regarding transfer pricing
documentation. There is no rule that requires Italian companies to prepare contemporaneous
documentation describing and supporting the transfer pricing policies that have been adopted
by the corporate group and the group‟s intercompany transactions. Nevertheless, under Article
32 of Presidential Decree 600 of 20 September 1973, the Italian tax authorities may require
taxpayers to produce documents concerning the assessment to which they are subject. This
means that Italian companies must compile documents such as:
- the group‟s legal structure;
- a description of any existing transfer pricing guidelines or policies within the group;
- a benchmarking analysis possibly used by the parties to determine the fair market
price, rate or consideration;
- intercompany agreements signed by parties; and
- all documents proving that any inter-company services have been actually rendered to
the Italian company and the benefit derived by the Italian company from such
services.
8
V-N 2001/59A.6, at 6078.
Question: Is there a statutory requirement in the Dutch tax legislation to prepare
documentation proving the arm‟s length value in the determination of transfer pricing? Is the
breach of the rule accompanied by an administrative or criminal penalty? Are “statutory
requirements” provided or is the “documentation just recommended to avoid shifting the
burden of proof concerning a reasonable price to the taxpayer”?
Answer:
See Answer 21. There is a statutory requirement in the Netherlands to prepare documentation
proving the arm‟s length nature of the transfer price: Art. 8b paragraph 3 CITA.
The required documentation administration as laid down in Art. 8b paragraph 3 CITA can be
qualified as an administration as described by Art. 52 of the General act on National Taxes. In
case the requirements of Art. 52 of the General act on National Taxes are not fulfilled, and
this can be the case when documentation requirements of Art. 8b paragraph 3 CITA are not
met, there is a reversal of the burden of proof. Furthermore, taxpayers could face criminal
penalties when not meeting the requirements of Art. 8b paragraph 3 CITA. 9
If n case the transfer prices are not at arm‟s length and they are corrected by the tax
authorities and the taxpayer had the intention to provide incorrect transfer prices, then this
may result in a penalty or fine for the taxpayer. 10
The Dutch Tax and Customs Administration also introduced horizontal supervision.
Horizontal supervision runs on self-regulation and it follows the actual trend of growing
importance of corporate governance to restore trust in large companies. Key elements of it are
mutual trust, understanding and transparency. One manifestation of horizontal supervision is
the conclusion of enforcement convenants with (Very) Large Businesses („ZGO‟s and
MGO‟s‟). These convenants include agreements about the manner and intensiveness of
monitoring and the way in which the parties work together. The basic principles of horizontal
supervision agreements include three elements: (1) parties express their intention to base their
mutual relationship on transparency, understanding and trust; (2) the agreements concern
taxation with regard to all taxes and tax collection; and (3) legal and regulatory rights and
obligations remain applicable without any restrictions. The relations between the tax
administration and taxpayers are put on a more equal footing. As a result, there is less vertical
supervision, such as extensive auditing of the books. According to the Dutch tax authority, a
convenant is based not only on trust but self-regulation as well. In the horizontal supervision
scenario, an enterprise has to have set up a Tax Control Framework. 11
9
See also Proceedings of the Second Chamber II 2001/02, 28034, No. 3, at 22: “Opgemerkt wordt dat de
ingevolge dit lid te voeren administratie, een administratie is in de zin van artikel 52, derde lid, van de Algemene
wet inzake rijksbelastingen. Dit houdt in dat de in die wet opgenomen bepalingen met betrekking tot het voeren
van een administratie mede van toepassing zijn op de onderhavige administratie op het punt van de
verrekenprijzen.‟
10
Proceedings of the Second Chamber II 2001/02, 28034, No. 5, at 48: “Gezien de complexiteit van de materie
zal bij verrekenprijscorrecties het opleggen van een boete op grond van het doen van een onjuiste aangifte
worden beperkt tot gevallen waarin aannemelijk is dat een verrekenprijs is overeengekomen die niet als arm‟slength is aan te merken als gevolg van een zuiver opzettelijke handeling. In het geval van grove schuld of
voorwaardelijke opzet zal derhalve geen boete worden opgelegd. Deze beleidsmatige toezegging zal worden
vastgelegd in een aanvulling op het verrekenprijsbesluit van 30 maart 2001 (IFZ2001/295M).‟
11
A Tax Control Framework (TCF) forms part of an Internal Control Framework (ICF). Where an ICF involves
the control of all business processes, a TCF focuses on the internal control of tax processes.
23. Imposition of penalties and burden of proof
The EU Code of Conduct recommends that Member States not impose documentation- related
penalties on taxpayers, at least not when they have complied in good faith with the EU TDP
or with domestic documentation requirements in a reasonable manner and within a reasonable
time (Communication from the Commission to the Council, the European Parliament and
Economic and Social Committee”, note 3, at 7).
Italy: There are no specific transfer pricing penalties.
Question: If there is a statutory requirement to prepare documents in the Netherlands, what is
the nature (administrative or criminal) of the related penalty?
Answer:
See answers 21 and 22.
A taxpayer failing to comply with the documentation requirement as laid down in Art. 8b,
paragraph 3 CITA will prejudice his or her its evidentiary position. According to the Deputy
Minister, in such a case the burden of proof is shifted to the taxpayer with respect to the arm‟s
length nature of the transfer price.12 The Deputy Minister justified this shifting of the burden
of proof as follows:
“(...) considering the fact that the information, to be made available under the proposed
administrative order, is required for assessing the arm‟s length nature of the transfer prices
agreed, and that the information is so closely related to the way the taxpayer carries on its
business, that it cannot, or with great difficulty, be obtained in any way other than through the
taxpayer.” 13
12
Proceedings of the Second Chamber II 2001/02, 28034, No. 3, at 22 and No. 5 at 37.
“Deze maatregel heeft –kort gezegd- betrekking op de beschikbaarheid van informatie die benodigd is om te
beoordelen of de door de belastingplichtige gehanteerde prijzen en voorwaarden (verrekenprijzen) in gelieerde
verhoudingen als zakelijk zijn aan te merken. Met het administratieve voorschrift wordt beoogd de duidelijkheid
hieromtrent te vergroten. Ingeval de belastingplichtige duidelijk in gebreke blijft op het punt van het
administratieve voorschrift, zal, gelet op de systematiek van de Algemene wet inzake rijksbelastingen, de
bewijslast met betrekking tot de zakelijkheid van de gehanteerde verrekeningprijzen naar de belastingplichtige
verschuiven. In dat geval moet de belastingplichtige aannemelijk maken dat de door hem gehanteerde
verrekenprijs als een arm‟s-length prijs kan worden aangemerkt. De belastingplichtige is hierbij vrij in de wijze
waarop hij dit aannemelijk maakt. In het derde lid wordt aangegeven dat de administratie van belastingplichtigen
bepaalde gegevens dient te bevatten. Dit betreft informatie over de wijze waarop de gehanteerde verrekenprijzen
tot stand zijn gekomen. In hoofdstuk 1 van de OESO-richtlijnen worden richtlijnen gegeven voor het toepassen
van het arm‟s lengthbeginsel. In paragraaf 1.15 wordt aangegeven dat het toepassen van het arm‟slengthbeginsel over het algemeen gebaseerd is op een vergelijking van de voorwaarden van een
concerntransactie met de voorwaarden van een transactie tussen onafhankelijke ondernemingen. De factoren die
bepalend kunnen zijn voor de vergelijkbaarheid worden genoemd in de paragrafen 1.19 tot en met 1.41. Het
betreft de kenmerken van goederen en diensten, de functieanalyse, de contractuele voorwaarden de economische
omstandigheden en de ondernemingsstrategieen. Zoals uit de OESO-richtlijnen blijkt, wordt de relevantie van de
factoren bepaald door de feiten en omstandigheden van het specifieke geval. Belastingplichtige dient op basis
van de invulling van de relevante factoren zijn keuze van de gehanteerde verrekenprijsmethode te kunnen
onderbouwen. Het is echter uitdrukkelijk niet de bedoeling dat de belastingplichtige alle methoden beoordeelt en
vervolgens onderbouwt waarom de door hem gekozen methode onder de gegeven omstandigheden tot de beste
uitkomst leidt (best method rule) (..)”.
13
Proceedings of the Second Chamber II 2001/02, 28034, No. 5 at 37
24. Type of documents to be provided
Italy: The taxpayer is obliged to provide documents within its legal sphere, e.g. the original
documents which, assessed overall, lead to a functional analysis; in contrast, the taxpayer is
not required to provide the summary of the functional analysis. The taxpayer, when
specifically requested, has to provide (given it might be unable to produce them later)
documents of its business, and therefore the auditors could well require the production of the
documents that establish the capital employed and risks assumed in the intercompany
transaction. For example, a contract between the assessed enterprise and an associated
company (or correspondence proving covenants between the companies themselves) has to be
provided to the tax authorities, without any possibility of being used afterwards; instead, the
summary functional analysis, which also includes an evaluation of the functions performed by
the taxpayer, may also be produced by the same taxpayer later.
Question: Is the taxpayer required to provide only “original documents” or must it provide
even a functional analysis with an evaluation? In particular, are there implicit limitations in
the request for information by domestic tax authorities to foreign companies within the same
group of the audited company? (For example: during the tax audit, does the taxpayer have to
provide the price that its foreign affiliates paid to independent enterprise or should the tax
administration consult the competent foreign tax authorities by means of information
exchange?)
Answer:
Art. 8b paragraph 3 CITA requires that an affiliated entity should not only have documents
showing how the transfer price was arrived at. The documents should also show that it is
evident that this transfer price has been tested for compliance with the arm‟s length principle.
In the parliamentary proceedings it is stated that it‟s up to the taxpayer to decide how he or
she will show the arm‟s length nature of the transaction in his documentation. 14 For the
purpose of Art. 8b CITA a so-called „open norm‟ is used. Art. 8b paragraph 3 CITA requires
that the taxpayer should provide sufficient information from which can be concluded whether
the transactions are at arm‟s length. However, the legislation does not specifically describe in
detail which information is required to conclude the arm‟s length nature of the transaction.15
As stated during the parliamentary proceedings, the use of this so-called „open norm‟ prevents
that irrelevant information is collected and provided by the taxpayer. As a consequence of the
flexible character of the Art.8b CITA documentation requirement, simple transactions
between associated enterprises require less information to be provided to the tax authority
than complex transactions. The taxpayer is not required to perform a research on similar
transactions between unrelated parties. 16 This is also confirmed by the Deputy Minister, who
14
Proceedings of the Second Chamber II 2001/02, 28034, No. 3 at 22:
“In dat geval moet de belastingplichtige aannemelijk maken dat de door hem gehanteerde verrekenprijs als een
arm‟s –lengthprijs kan worden aangemerkt. De belastingplichtige is hierbij vrij in de wijze waarop hij dit
aannemelijk maakt.”
15
Proceedings of the Second Chamber II 2001/02, 28034, A at 10-11, “Advies Raad van State en Nader
Rapport”: “Deze benadering voorkomt dat door individuele belastingplichtigen informatie dient te worden
verzameld en verstrekt die niet relevant is voor het individuele geval. Het openlaten van de wijze waarop de
belastingplichtige zijn documentatie-verplichtingen invult, brengt het aanvullende voordeel met zich dat de
belastingplichtige de documentatie-verplichtingen waaraan in de andere betrokken landen moet worden voldaan
en de in Nederland te verstrekken informatie op elkaar kan afstemmen.”
16
Proceedings of the Second Chamber II 2001/02, 28034, No. 5 at 34-36: “Daarom verplicht de voorgestelde
administratieve maatregel belastingplichtige niet een onderzoek of studie uit te voeren naar de prijzen die in
vergelijkbare situaties tussen ongelieerde partijen tot stand zijn gekomen. Het ontbreken van een dergelijke
studie leidt derhalve niet tot omkering van de bewijslast. (...) Dit wordt bereikt doordat de benodigde informatie
has explicitly confirmed that the proposed documentation requirement instructs the taxpayer
not to carry out any investigation or study into the prices which have been arrived at in
comparable situations between unaffiliated companies. The lack of such an investigation or
study would not result in reversal of the burden of proof. 17
Generally, the documentation requirement consists of three parts. The first part is the
description of the five comparability factors and the second part contains the explanation why
a specific transfer pricing method has been chosen by the taxpayer. In the third part the
taxpayer should elaborate on the transaction price being at arm‟s length.
25. Choice of transfer pricing method
The TP Guidelines establish a hierarchy among the three traditional transaction methods
(comparable uncontrolled price, cost plus and resale minus) and the transactional profit
methods (transactional net margin method and transactional profit split methods). According
to the TP Guidelines, the transactional profit methods are last-resort methods, e.g. they
should be used only in the exceptional situations where there are no data available or the
available data are not of sufficient quality to rely solely or at all on the traditional transaction
methods (Paragraph 2.49 of the TP Guidelines). The CUP method is always preferable where
it can be applied in a sufficiently reliable manner.
Italy: The tax treatment of transfer pricing is currently governed by Article 110, Paragraph 7
of the Income Tax Consolidated Act (ITCA). The arm‟s length definition contained in this
provision refers to the concept of “normal value”, which is defined by Article 9 (2) of the
ITCA. Therefore, Article 9 of the ITCA represents the statutory basis for the determination of
the arm‟s length value of an intra-group transaction. In order to provide guidance on the
concept of “normal value” arising from Article 9 of the ICTA, the Ministry of Finance issued
a Circular Letter (32/9/2267 of 22 September 1980) [and Circular letter 42/12/1587 of 12
December 1981] in which it analytically indicated the methods to be used for each type of
transaction (e.g. transfer of movable goods, transfer of technology, loans and intra- group
services) based on the arm‟s length principle. Although not legally binding, the Circular is
generally accepted by the tax authorities and taxpayers, and is considered to be the main
reference for the interpretation of transfer pricing issues. Such Circular Letters refer to a body
of rules which have in part been modified but are still extensively applicable and extremely
important, especially with regard to the methods for determining the normal value, since they
represent the only instructions of a general nature supplied by the Ministry on the matter.
Basic Methods: A reading of the above-mentioned Article 9(2) ITCA seems to indicate that
the comparable price method is the only method the Italian legislator allows to be used for the
actual application of the transfer pricing system. The Italian Ministry of Finance, the
prevailing opinion and the case law all concur in the necessity of having recourse to the
transfer pricing system even when the comparable price method proves not to be applicable.
In its 1980 Circular Letter the Ministry of Finance affirmed, in harmony with the indications
set forth under OECD Reports, that where a comparison between the transaction being
verified and the sample one is not possible, recourse must be made to the resale price method
or to cost-plus method.
niet expliciet is omschreven en dus aan de feitelijke situatie kan worden aangepast en doordat aan de
belastingplichtige slechts een verplichting wordt opgelegd die niet verder strekt dan de documentatie die
minimaal noodzakelijk is om conform de OESO-richtlijnen voor verrekenprijzen te kunnen werken. “
17
Proceedings of the Second Chamber II 2001/02, 28034, No. 5, at 36.
Alternative Methods (The Overall Profit Allocation Method; Profit Comparison Method,
Invested Capital Profitability Method, Economic Sector Gross Margin Method): The use of
alternative methods, in other words transfer pricing methods other than the basic ones, is not
provided for by the current legislation as it envisages only the comparable price method. In its
1980 Circular Letter the Ministry of Finance has, however, allowed that “the application of
the basic methods (price comparison, resale price, cost-plus) may not, in some particular
cases, satisfy the application of the regulations governing Transfer Pricing since frequently
there are no comparable transactions and just as frequently a reliable comparison between
independent enterprise is not possible”. Consequently, it was considered advisable that other
methods suitable for a practical use be taken into consideration in the event that basic methods
prove inadequate. It is pointed out in the said Circular Letter that in practice the use of such
methods tends to determine the normal profit rather than the congruity of the transfer price
and it is specified that alternative methods may be considered useful: i) supplementary, when
upon verifying the correct application of the three basic methods uncertainties, arise; ii)
alternatively, when it is absolutely impossible to apply the three basic methods.
Question: Is there a regulatory hierarchy in choosing these methods? Are the transactional
methods preferred over the profit-based methods? Is the choice based on the nature of the
goods or service sold?
Answer:
The policy of the Netherlands on the arm‟s length principle in the field of international tax
law is that this principle forms an integral part of the system of tax law of the Netherlands as a
result of its incorporation in the broad definition of business income („total profit‟) recorded
in Section 3.8 of the Income Tax Act 2001. In principle, this means that the OECD Guidelines
apply directly to the Netherlands under Section 3.8 of the Income Tax Act 2001.18 In
accordance with Paragraph 4.9 of the OECD Guidelines 1995, whenever the Netherlands‟ tax
administration undertakes a transfer pricing audit, it should start from the perspective of the
method adopted by the taxpayer at the time of the transaction. 19 As a consequence, tax payers
are in principle free to choose a transfer pricing method, provided that the method adopted
leads to an arm‟s length outcome for the transaction in question. Although tax payers may be
expected to base their choice of a transfer pricing method on the reliability of the method for a
particular situation, taxpayers are not expected to weigh up the advantages and disadvantages
of all of the various methods and then explain why the method that was ultimately adopted
generates the best results in the prevailing conditions. Taxpayers are not obliged to use more
than one method. The only obligation resting on the taxpayer is to explain why the decision
was taken to adopt the particular method that was adopted.20 In the explanatory memorandum,
the Deputy Minister explicitly refers to Chapter 1 of the OECD Guidelines. In the opinion of
the Deputy Minister, the taxpayer should substantiate his or her its choice for a particular
transfer pricing method. Furthermore, the Deputy Minister rejects the best method rule, by
stating that it is not intended that the taxpayers should evaluate all methods and then should
substantiate why the method they have it has selected will produce the best results under the
given circumstances.21
18
Netherlands‟ Ministry of Finance, Decree No. IFZ 2001/295M, officially published in Dutch on 30 March
2001.
19
Netherlands‟ Ministry of Finance, Decree No. IFZ 2001/295M, officially published in Dutch on 30 March
2001, Chapter 2. This complies also with Paragraph 1.68 of the OECD TP Guidelines 1995
20
Netherlands‟ Ministry of Finance, Decree No. IFZ 2001/295M, officially published in Dutch on 30 March
2001, Chapter 2
21
In a Letter of the Deputy Minister of Finance, 11 December 2001, V-N 2001, 66/2, he writes:
26. Burden of proof and bilateral conventions
Potential conflicts may result from a different allocation of the burden of proof in the
jurisdictions involved in transfer pricing matters: see Transfer Pricing Guidelines for
Multinational Enterprises and Tax Administrations, 2009 Para. 4.14 (“When transfer pricing
issues are present, the divergent rules on burden of proof among OECD Member countries
will present serious problems if the strict legal rights implied by those rules are used as a
guide for appropriate behaviour. For example, consider the case where the controlled
transaction under examination involves one jurisdiction in which the burden of proof is on the
taxpayer and a second jurisdiction in which the burden of proof is on the tax administration.
If the burden of proof is guiding behaviour, the tax administration in the first jurisdiction
might make an unsubstantiated assertion about the transfer pricing, which the taxpayer might
accept, and the tax administration in the second jurisdiction would have the burden of
disproving the pricing. It could be that neither the taxpayer in the second jurisdiction not the
tax administration in the first jurisdiction would be making efforts to establish an acceptable
arm’s length price. This type of behaviour would set the stage for significant conflict as well
as double taxation”) and Para. 4.15 (“Consider the same facts as in the example in the
preceding paragraph. If the burden of proof is again guiding behaviour, a taxpayer in the
first jurisdiction being a subsidiary of a taxpayer in the second jurisdiction (notwithstanding
the burden of proof and these Guidelines), may be unable or unwilling to show that its
transfer prices are arm’s length. The tax administration in the first jurisdiction after
examination makes an adjustment in good faith based on the information available to it. The
parent company in the second jurisdiction is not obliged to provide to its tax administration
any information to show that the transfer pricing was arm’s length as the burden of proof
rests with the tax administration. This will make it difficult for the two tax administrations to
reach agreement in competent authority proceedings”).
Italy: there are no bilateral conventions containing provisions in this sense.
Question: Given that Article 9 of the OECD Model is silent on the subject of the burden of
proof, are there bilateral conventions to avoid double taxation that instead contain express
provisions on the burden of proof in transfer pricing matters? Is this a matter of domestic law?
Answer:
There are no bilateral conventions containing provisions in this sense.
27. Burden of proof and information exchange procedures
The tax authorities tend to perform all auditing activities in Italy without reverting to bilateral
or multilateral procedures available in order to verify and prove their conclusions. For
example, the lack of comparable data in Italy often leads the tax authorities to abandon the
CUP method in favour of the cost-plus methods or the other alternative methods which do not
“ I can confirm that the lack of a study of public databases will not result in the taxpayer being in default in
respect of the accounting prescriptions, and therefore will not result in reversal of the burden of proof. Said study
can be considered a comparability analysis as referred to in the Note following the Minutes of the lower house”.
(translation by author)
require investigations outside of Italy. Indeed, practice shows that there are few exceptions to
this attitude and few situations in which audits are commenced based on information
spontaneously made available by foreign authorities.
For example, an assessment which justifies the application of the cost-plus method because of
the impossibility of finding comparable data may be considered void for lack of proof if it can
be shown that the tax authorities did not try to find the comparable data through an exchange
of information with the jurisdiction in the market of destination of the goods. When the tax
authorities have failed to undertake an exchange of information procedure, tax courts may
void tax assessments for lack of proof. However it is interesting to note that the Italian tax
authorities are aware of the risk that a passive approach in carrying out audits of international
transactions may be considered by a judge as a failure to meet the burden of proof. In Circular
letter of 21 October 1997 271/E, paragraph 2.3., the Ministry of Finance stressed that
finalization of assessments concerning the deductibility of head office expenses is appropriate
only after having taken recourse to the exchange of information procedures aimed at verifying
whether the costs recharged to the Italian taxpayer were actually borne by the head office and
if the costs were connected to the business of Italian taxpayer.
Question: Does the Dutch national law require prior recourse to an exchange of information
procedure in order to finalize a tax assessment regarding transfer pricing or a tax assessment
involving international tax issues in general?
Answer: No
- In particular, are the tax authorities free to issue assessments based on alleged violations of
the arm‟s length principle without the necessity of previously verifying abroad the
information and the data which could confirm or void such assessments?
Answer: Yes
- What kind of obligations does the taxpayer have to fulfil if the tax authorities request further
information during this procedure?
Answer:
The requirement to provide information for Dutch taxation is laid down in Art. 47 of the
General Act on National Taxes. If a foreign parent company participates for more than 50% in
the capital of the Dutch taxpayer, iInformation of the foreign parent company should be
provided too, in case a foreign parent company participates for more than 50% in the capital
of the Dutch taxpayer. This follows from the wording of Art. 47a of the General Act on
National Taxes. In case there is a possibility to collect this information through an exchange
of information procedure, this should be done firstly. In case the exchange of information
procedure does not lead to results, the tax authorities can use Art. 47a of the General Act on
National Taxes to collect the information with the taxpayer.
28. Burden of proof in the mutual agreement procedure
Tax treaties do not provide for the avoidance of double taxation in specific situations.
Consequently, there is a need for an effective tool to solve disputes among the tax authorities
of different jurisdictions. Therefore, income tax treaties include a special kind of procedure
known as the mutual agreement procedure (MAP), which is generally modelled on Article 25
of the OECD Model Treaty. The great advantage of the MAP for both tax authorities and
taxpayers is its flexibility and relatively non-bureaucratic nature.
The taxpayer should be given the right to approach the tax authorities of the two countries
involved to obtain advance clearance, on the basis of mutual agreement, on the basic
elements of the transfer pricing system to be followed such as the method to be applied, the
selection of the data to be used and, if required, adjustments thereto.
Question: What is the taxpayer‟s legal position in a mutual agreement procedure?
Answer:
All tax treaties of the Netherlands include a mutual agreement procedure. Decree
IFZ2008/248M of 29 September 2008 deals with mutual agreement procedures 22 and Decree
IFZ2004/124M of 11 August 2004 deals with the advance pricing agreements.
The mutual agreement procedure is a process between States. Therefore, officially, the
taxpayer is officially not involved in the communication between the two States. However,
the tax authorities of the Netherlands will try to inform the taxpayer adequately. 23 In case the
taxpayer thinks that the acts of one or two States will result in double taxation, the taxpayer
can request a mutual agreement procedure. The tax authorities of the Netherlands offer the
possibility to start the mutual agreement procedure before the taxpayer brings the case to
court. The request for a mutual agreement procedure will be forwarded within four weeks by
the tax authorities to the other State. After the tax authorities of the Netherlands have received
the position paper of the other State, they will start the mutual agreement procedure.
The request for a mutual agreement procedure should include among others the following:
-
taxpayer‟s information, such as names, location etc.;
information about the relevant facts and circumstances of the issue, including data
regarding the association between the enterprises;
taxpayer‟s reasons from which it can be concluded that there might be a situation of
double taxation;
the tax treaty involved;
information about the tax assessments. 24
The taxpayer should provide as soon as possible all relevant documents if this is required by
the tax authorities of the Netherlands. 25 In case of an early commencement of the mutual
agreement procedure, the taxpayer can decide whether he or she accepts the result or not. If
the taxpayer rejects the outcome of the advanced mutual agreement procedure, the taxpayer
can still start domestic procedures. If the competent authority in the other state may not be
prepared to assist in the early commencement of the mutual agreement procedure, for
example if there is no sufficient certainty as to the existence of the international double
taxation in question, the Netherlands‟s competent authority notifies the taxpayer and tax
22
Decree on Mutual Agreement Procedures, No.IFZ2008/248M, 29 September 2008
Decree on Mutual Agreement Procedures, No.IFZ2008/248M, 29 September 2008, at 23 : “Hoewel de
onderlinge overlegprocedure een aangelegenheid is van overheid tot overheid waarbij belastingplichtige in die
zin niet direct is betrokken, is het uitgangspunt van de Nederlandse bevoegde autoriteit om belastingplichtige
gedurende de gehele procedure zo goed mogelijk en zo volledig mogelijk te informeren. Daarbij is het streven
om zoveel mogelijk rekening te houden met de door belastingplichtige gegeven visie op de situatie. Zoals
opgemerkt in paragraaf 2.5 is deze inbreng van belastingplichtige facultatief en kan deze zowel mondeling als
schriftelijk plaats vinden. Voorts zal de Nederlandse bevoegde autoriteit zich inspannen om belastingplichtige zo
snel mogelijk te informeren over onverwachte wijzigingen in het verloop van de procedure.”
24
See Decree on Mutual Agreement Procedures, No.IFZ2008/248M, 29 September 2008, at 12 for a full list of
the requirements.
25
Decree on Mutual Agreement Procedures, No.IFZ2008/248M, 29 September 2008: “een toezegging van
belastingplichtige dat hij zo spoedig mogelijk aan alle redelijke en passende verzoeken van een bevoegde
autoriteit zal voldoen en alle stukken ter beschikking van de bevoegde autoriteit zal houden.”
23
inspector. Both the taxpayer and the tax inspector are then entitled to request the Court of
Appeal to recommence legal proceedings.
Before starting a mutual agreement procedure, a taxpayer can also request a unilateral, bi-or
multilateral advance pricing agreement. Decree IFZ2004/124M of 11 August 2004 deals with
the advance pricing agreements. The advance pricing agreements can also deal with prices of
previous years (rollback).