We have gathered feedback from the tax authorities of various key countries to find out the specifics about their APA programs. Read the following Q&A interview on the topic of APAs in the Netherlands with Messrs P.B. Plasman, Head of the Dutch APA team and E. Kruidenier (Acting supervisor of the Dutch APA team).
Q: What are, in your view, the main achievements of your APA program?
A: Certainty in advance for both the companies/taxpayers and the tax authorities.
Flexibility towards a changing worldbusiness environment.
Lesser administrative burden (compared to the period of time before APA’s were in place).
It is considered an efficient risk management tool by companies.
Issues and challenges
Q: What are the main challenges facing your APA program?
A: Delays. The aim of the Dutch APA program is speed and efficiency.
At the local level, the Dutch APA team needs to respond quickly. In an international context, for example, with regard to bilateral/multilateral APAs, the Netherlands is dependent on the cooperation of other countries (which is often subject to numerous delays).
Q: Are there particular substantive issues (for instance, marketing intangibles or buy-ins for cost sharing arrangements, etc.) that have been more difficult to deal with?
A: No, albeit that APAs/transfer pricing vary in their complexity; one item that requires specific attention is substance, especially in structures involving intercompany financial transactions and IP. The identification and valuation of IP may also add complexity to the APA process in the Netherlands (especially in cases where the IP is exiting the Netherlands).
Q: Are there particular procedural issues (for instance, APAs involving more than two jurisdictions or APAs where prior years are under the mutual agreement procedure and these involve large proposed adjustments, etc.) that have been more difficult to deal with?
A: In the Netherlands, there is a dedicated and experienced APA team; this is not always the case in other countries. Of course bilateral/multilateral APAs may be complex and require more time.
Q: Are there any other issues that you would like to bring to the attention of taxpayers as potentially difficult?
A: Delays in the response of other countries. Also, an APA must always meet the arm’s length standard (both in- and outbound) and be based on a robust functional and economic analysis.
Q: From your experience, what are the main best practices that you would recommend that taxpayers adopt in requesting and filing for an APA?
A: Taxpayers should ensure that the information supporting their APA request is complete and accurate and provided on time. Taxpayers also need to have realistic expectations about the content of an APA and their pricing request(s).
Trends and outlook
Q: Based on your experience, have you noticed certain trends in any of the following topics:
A: A steady increase in the number of APAs. Unilateral APAs are still by far the most popular, but the amount of bilateral/multilateral APAs with different countries has been growing over the years.
A: No significant trends detected.
- Transfer Pricing Methodology (TPM) proposed
A: The Transactional Net Margin Method (“TNMM”) is the most common method. There has been a slight increase in application of the profit split method (generally at the request of a foreign tax authority). Having said this, any transfer pricing method and outcome is permissible, provided the method and outcome concurs with the arm’s length principle as defined in the OECD Transfer Pricing Guidelines.
A: See above.
A: Certainty, and to assist in resolving past disputes arising from transfer pricing tax audits and issues; this is more common in bilateral/multilateral requests than in unilateral APA requests.
A: A steady increase in APAs, with the risk of an internal APA “traffic jam”; however, the Dutch APA team considers a speedy response essential and is in the process of gearing its staff levels to meet expected future demand.
More advance communication between countries in cases involving joint tax audits.
More and more countries have an APA practice and develop such practice further.
A: The Dutch APA team is a dedicated team. In principle, its staffing levels are in the process of being geared to meet the expected future (increased) demand.
A: The Netherlands has a positive attitude on this issue and strives to have three countries at the negotiating table or to facilitate direct negotiations. However, most countries only wish to negotiate with the countries involved in the intercompany relationship.
A: The Netherlands is in favor of MAP/EU Arbitration, but there is no such arbitration option for unilateral, bilateral, or multilateral APAs.
A: The Netherlands follows international standards and developments, especially on EU and OECD level.