How to Utilize Advance Pricing Agreements Under Dutch Law

Multinational enterprises use advance pricing agreements to help provide certainty that tax authorities will not challenge the validity of transfer pricing methods between related parties and to help avoid double taxation. This article discusses how MNEs can use such APAs under Dutch law.

I. Overview of Transfer Pricing and APAs

A. “Inbound” v. “Outbound”
Cross-border taxation is divided into two general categories: (1) inbound cross-border taxation; and (2) outbound cross-border taxation. The terms “inbound” and “outbound” are terms of perspective.

Inbound cross-border taxation refers to the perspective of the taxing authority when it is examining the potential tax liability of non-citizens (including business organizations) which are operating within the taxing authority’s home borders. So, if a Dutch business organization is operating in the US, the IRS would be examining the potential tax liability of that Dutch organization from an inbound cross-border perspective. Conversely, if the Dutch Taxing Authority (Belastingdienst) were examining a US taxpayer (including a business organization) which is operating within the Netherlands, in order to determine potential tax liability, it would be doing so from an inbound cross-border perspective. The Belastingdienst is part of the Dutch Ministry of Finance (Het Nederlandse Ministerie van Financiën).

Outbound cross-border taxation refers to the perspective of the taxing authority when it is examining the potential tax liability of citizen taxpayers (including business organizations) which are operating abroad. So, if a US taxpayer is operating in the Netherlands and the IRS feels that the US taxpayer is subject to tax liability, the IRS would be conducting that analysis from an outbound cross-border perspective. Conversely, if the Belastingdienst were examining a Dutch taxpayer (including a business organization) which is operating in the US, any tax liability that it, the Belastingdienst, feels the Dutch taxpayer owes is analyzed from an outbound cross-border perspective.

B. What Is an Advance Pricing Agreement?
Transfer pricing laws have been established by tax authorities to ensure that related business entities (e.g., MNEs) are charging the same price in controlled transactions as independent parties would in similar, uncontrolled circumstances. This is known as the arm’s-length standard. In order to determine whether a controlled transaction between related parties is arm’s length, the best method rule needs to be employed.

In general, an APA is an agreement between the taxpayer and the taxing authority which binds the taxpayer to a specific transfer pricing method. An APA also provides that if the conditions and terms of the agreement are satisfied, the taxing authority (or authorities) will not challenge the validity (from a tax perspective) of any transaction involving both the taxpayer and a party related to the taxpayer. The purpose of these agreements is to ensure that any transactions between related parties are conducted in an arm’s-length manner.

The Dutch perceive an APA as an arrangement that determines, in advance of controlled transactions, an appropriate set of criteria which includes: (1) comparables; (2) appropriate adjustments thereto; and (3) critical assumptions as to future events. Essentially, an APA is an official determination of pricing for controlled transactions over a fixed period of time. See OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, ¶4.134 (2022).

An APA can come in one of three forms:
(1) Unilateral: involves only one taxing authority—only the Belastingdienst (e.g., a Dutch taxpayer involved in a transaction with a related party that also is a Dutch taxpayer).
(2) Bilateral: involves two taxing authorities—both the IRS and the Belastingdienst (e.g., a US taxpayer involved in a transaction with a related business entity which is a Dutch taxpayer).
(3) Multilateral: involves three or more taxing authorities—the IRS, the Belastingdienst and the Skatteetatan (the Norwegian taxing authority) (e.g., a US taxpayer involved with two related parties; one of which is a Dutch taxpayer, and the other being a Norwegian taxpayer).

C. What Does the Term “Transfer Pricing” Mean?
The term “Transfer Pricing” refers to the price which is paid in transactions between related parties in an MNE. For the purposes of this article, the word “Parties” refers to business organizations. The word “Related” means the parties are connected to one another either by a common parent (horizontal and vertical relationship) or one of the parties is, in fact, the parent of the other party (vertical relationship).

Transactions may involve the following: (1) tangible property; (2) intangible property; (3) services; and (4) financing. Intangible products include—but are not limited to—patents, trademarks, goodwill and copyrights.

D. Why is Transfer Pricing Important?
Transfer pricing is important for several reasons. Essentially, the price one related party charges another related party in a transaction will be a factor (albeit, perhaps a small factor) in determining whether a profit or a loss will be attributable to each party in a given tax year.

Transfer pricing becomes an issue in cross-border taxation because tax laws and, more importantly, tax rates, vary by country. Multinational firms have been known to attempt to utilize transfer pricing in order to obtain the lowest possible effective tax rate in a particular transaction for a particular taxpayer.

For example, assume Parent Corporation (P) is incorporated in Country X and controls both Subsidiary No. 1 (S1) and Subsidiary No. 2 (S2). S1 is both incorporated and headquartered in Country A. S2 is both incorporated and headquartered in Country B. Country A’s effective corporate tax rate is 25%. Country B’s effective corporate tax rate is 28%. If S2 sells tangible products to S1 at a price which does not reflect an arms-length market price (i.e., S2 sells to S1 at a lower price), two things happen. First, S1’s costs savings are increased, thereby increasing its profitability in the country with the lower of the two effective corporate tax rates. Second, S2’s sales and/or revenues are lower (due to the lower price it received in the transaction), thereby decreasing its profitability in the country with the higher of the two effective tax rates. The governments of many nations look upon this type of transaction as tax avoidance.

The Netherlands has implemented legislation under Article 8b of the Corporate Income Tax Act of 1969 (CITA) to address perceived transfer price avoidance. The Netherlands has also adopted certain non-binding 2022 OECD TP Guidelines as well as other legislation to address perceived transfer price avoidance. See van Dam and Dijkstra, 6965 T.M., Foreign Income: Transfer Pricing: Rules and Practice in Selected Countries (M-P).

II. Transfer Price Methodologies Recognized Under Dutch Law

A. Starting Point for a Transfer Price Investigation
It is established procedure that the Dutch Tax and Customs Administration (Belastingdienst) will always start its transfer pricing investigation from the perspective of the method used by the taxpayer at the time of the transaction. Although the taxpayer is expected to take into account the reliability of the method for the situation in question when choosing a transfer pricing method, the taxpayer does not have to assess all methods and then justify why the method it has chosen in the particular transaction leads to the best outcome (e.g., the best method rule). (See Dutch Secretary for Finance’s Decree No. 2022/0000139020, §3.1).

B. Types of Transfer Pricing Methods
The Dutch government has adopted the three traditional transaction methods as well as the two transactional profit methods set forth in Chapter II of the 2022 TP OECD Guidelines. See Decree No. 2022/0000139020, §3.1.

The three traditional methods are the: (1) comparable uncontrolled price (CUP) method; (2) resale price method; and (3) cost plus method. Perhaps surprisingly, these methods, including their names, date from the US Treasury Department transfer pricing regulations which were issued in 1968. The two transactional profit methods are: (1) the profit split method; and (2) transactional net margin method (TNMM). See 2022 OECD TP Guidelines, ¶¶2.14-2.187. See Patrick Beattie, What Are the Dutch Transfer Pricing Methodologies and Rules?, Tax Mgmt. Int’l J. (May 8, 2025); Patrick Beattie, How Do US and Dutch Transfer Pricing Methodologies Differ?, Tax Mgmt. Int’l J. (May 27, 2025).

III. Overview Of Advance Pricing Agreements Under Dutch Law

A. Introduction
1. Article 8c CITA
On January 1, 2002, a new statutory provision, Article 8c of the Corporate Income Tax Act (“CITA”), was introduced in the Netherlands. Pursuant to Article 8c CITA, an entity or individual is deemed related if:

(a) The taxpayer holds an interest of one-third or more in the entity;
(b) The entity or individual holds an interest of one-third or more in the taxpayer; or
(c) Another entity or individual holds an interest of one-third or more in the entity while also holding an interest of one-third or more in the taxpayer.

See van Dam and Dijkstra, 6965 T.M., Foreign Income: Transfer Pricing: Rules and Practice in Selected Countries (M-P).

Pursuant to Article 8c CITA, an individual is generally deemed to be related to a company if he or she holds an interest of at least one-third in the company or in another company which is deemed related to the company at issue. See van Dam and Dijkstra, 6965 T.M., Foreign Income: Transfer Pricing: Rules and Practice in Selected Countries (M-P).

Finally, Article 8c CITA provides that interest and royalties received and paid on loan and licensing/sub-licensing arrangements with related entities or individuals will not be included in taxable income if no real risks are incurred by the Dutch company with respect to these arrangements.

(a) The consequences of not including in taxable income the interest or royalties received and paid will be that there is no possibility to credit any foreign withholding taxes.

(b) Moreover, the Dutch company will still have to report as taxable income an arm’s-length fee for the limited financing and licensing services rendered in connection with the generation of the interest and royalties.

See van Dam and Dijkstra, 6965 T.M., Foreign Income: Transfer Pricing: Rules and Practice in Selected Countries (M-P).

2. Het Nederlandse Ministerie van Financiën and Belastingdienst and the OECD TP Guidelines
The Dutch Ministry of Finance (Het Nederlandse Ministerie van Financiën) (hereinafter “The Ministry”) along with the Belastingdienst, are two governmental entities taxpayers operating in the Netherlands with a related party will interact in a situation involving a proposed advance pricing agreement.

The OECD is an intergovernmental organization established in 1961 with the mission to stimulate economic development and world trade. It has thirty-eight (38) members. Both the Netherlands and the United States are current members.

The 2022 OECD TP Guidelines provide background information on advance pricing agreements. See 2022 OECD TP Guidelines, ¶¶4.134-4.149.

The 2022 OECD TP Guidelines also provide possible approaches for legal and administrative rules governing advance pricing agreements. See 2022 OECD TP Guidelines, ¶¶4.150-4.152.

Continuing, the 2022 OECD TP Guidelines provide information concerning the advantages of advance pricing agreements. See 2022 OECD TP Guidelines, ¶¶4.153-4.157.

Finally, the 2022 OECD TP Guidelines provide information concerning the disadvantages of advance pricing agreements. See 2022 OECD TP Guidelines, ¶¶4.158-4.169.

B. Decree No. 2019/13003
1. Purpose of the Decree and Previous Tax-Related Decrees
This 2019 decree, issued by the State Secretary of Finance, enables a Dutch taxpayer to receive a preliminary consultation and then, possibly, obtain advance certainty through an advance pricing agreement. See Decree No. 2019/13003, ¶1.

Decree No. 2019/13003 replaced earlier decisions issued in 2014; specifically, DGB 2014/3098, DGB 2014/3099 and DGB 2014/3101. See Preliminary Statement, Decree No. 2019/13003.

2. Additional Dutch Taxing Authorities
In addition to the Ministry and the Belastingdienst, a Dutch taxpayer may have to interact with several additional Dutch governmental entities.

a. College International Fiscal Certainty of the Tax Authorities (“The College IFZ”)
The College IFZ is part of the Dutch Tax and Customs Administration. The College IFZ is responsible for the central coordination of the preliminary consultations. Central coordination ensures certainty in international rulings as to unity of policy and implementation and proper compliance with procedural requirements. The College IFZ is also charged with monitoring the quality of the relevant settlement agreements through the correct application of legislation, regulations, case law and policy. See Decree No. 2019/13003, ¶1, ¶2.2.

b. Tax Authorities’ International Tax Certainty Treatment Team (IFZ Treatment Team)
The IFZ Treatment Team oversees the following: (1) the application of the participation exemption to profits from investments not established in the Netherlands; (2) the qualification of hybrid forms of financing or hybrid legal forms of international structures; (3) permanent establishment (of taxpayers) issues: (4) allocation of assets and/or risks to a permanent establishment; and (5) issues involving whether a taxpayer is a Dutch business entity. This team also oversees the application of certain sections of CITA as well as the Dutch DB Act during preliminary consultations with the taxpayer. The IFZ Treatment Team oversees the application of anti-abuse provisions in tax treaties. Finally, it conducts the final processing of an APA request. See Decree No. 2019/13003, ¶1, ¶2.4.

3. Preliminary Consultations
The Dutch Tax Administrative Law Decree (“BFB”) provides the general framework within which Dutch Tax Authorities can refuse preliminary consultation. See Decree No. 2019/13003, ¶3.

Preliminary consultations to obtain certainty through an advance pricing agreement will only be entertained if the requesting taxpayer carries out business-economic operational activities in the Netherlands (economic nexus). In addition, these activities must be carried out for the account and risk of the requesting interested party, for which sufficient relevant personnel are present in the Netherlands at a group level. See Decree No. 2019/13003, ¶3.

Preliminary consultations will not be permitted if the sole or decisive motive for entering the APA would be to lower either Dutch or foreign tax liability. See Decree No. 2019/13003, ¶3.

Finally, if any of the parties related to a proposed APA are jurisdictionally connected to low-tax jurisdictions or non-cooperative jurisdictions for tax purposes, then preliminary consultations will not be permitted. See Decree No. 2019/13003, ¶3.

The following, as of the date of the publication of this article, is the Dutch list of countries without a profit tax or with a profit tax at a rate of less than 9% (low-tax jurisdictions):

(1) Anguilla;
(2) Bahamas;
(3) Bahrein;
(4) Barbados;
(5) Bermuda;
(6) British Virgin Islands;
(7) Cayman Islands;
(8) Guernsey;
(9) Isle of Man;
(10) Jersey;
(11) Turkmenistan;
(12) Turks and Caicos Islands; and
(13) Vanuatu.

Nations that fall within the prohibited list of non-cooperative jurisdictions, as determined by the EU, as of the date of the publication of this article, include: (1) American Samoa; (2) Anguilla; (3) Fiji; (4) Guam; (5) Palau; (6) Panama; (7) Russian Federation; (8) Samoa; (9) Trinidad and Tobago; (10) Vanuatu; and (11) United States Virgin Islands. See PwC, 2025 Regulation low- and non-cooperative tax jurisdictions (Sept. 1, 2025).

4. Required Information
If none of the factors outlined in III.B.3. of this article are present, then preliminary consultations will be permitted. At the outset of preliminary consultations, the Dutch taxpayer should be prepared to provide the following general information to the relevant Dutch tax authorities:

(1) A detailed description of the relevant facts and circumstances of the relevant proposed legal acts, transactions, products, matters of agreements and a clear position, view or conclusion on the tax consequences of the proposed legal acts or transactions;
(2) Identification of the permanent establishments concerned;
(3) Identification of the other country or countries to which the facts and the proposed legal acts or transactions of the request relate;
(4) Information about the global organizational structure and history of the group (including information concerning the ultimate beneficial ownership of the applicant’s assets);
(5) The financial years for which the security is requested;
(6) A declaration by the interested party or its authorized representative that none of the stakeholders or directors of the stakeholders in the agreement appear on the EU sanctions list (see supra); and
(7) A completed draft standard form (as referred to in Paragraph 3 of the BFB) relating to the exchange of cross-border tax rulings.

See Decree No. 2019/13003, ¶6.

Dutch tax practitioners seeking an APA will need to be prepared to provide additional, required information. To begin, the group file referred to in Article 29g of CITA will need to be made available to the Dutch taxing authorities. See Decree No. 2019/13003, ¶6.

Next, financial data and any other information concerning products used and functions performed in the anticipated transaction will be a factor in preliminary consultations. The required information includes the identification of both tangible and intangible assets used in the performance of any functions. Any risks incurred by the taxpayer or any affiliated party need to be disclosed as does an analysis of the financial interest of the APA over the term of the proposed settlement agreement. See Decree No. 2019/13003, ¶6.

The taxpayer will need to identify all assumptions and then analyze any potential effects of these assumptions. Continuing, the taxpayer will also need to identify and describe all contractual terms, business strategies and applicable market conditions. See Decree No. 2019/13003, ¶6.

Finally, and perhaps most importantly, the taxpayer will need to be prepared to provide the Dutch taxing authorities with an analysis of the proposed transfer pricing method. This analysis should include both comparable figures from independent market parties as well as any adjustments made. See Decree No. 2019/13003, ¶6.

5. The OECD Requirements
The 2019 decree establishes that if preliminary consultations establish that the taxpayer’s proposed APA falls within the application the CITA, the Dutch DB Act or an applicable tax treaty, then it will be accepted and recorded so long as the proposed APA conforms to applicable paragraphs of the 2022 OECD TP Guidelines. See Decree No. 2019/13003, ¶2.3, ¶2.4; 2022 OECD TP Guidelines, ¶¶4.134-4.176.

Tax administrations may find APAs particularly useful in profit allocation or income attribution issues arising in the context of global securities and commodity trading operations. Moreover, APAs are useful in handling multilateral cost contribution arrangements, allocation issues, permanent establishments and branch operations. See 2022 OECD TP Guidelines, ¶4.142.

The 2022 OECD TP Guidelines caution that tax administrations should be wary of absolutes. This applies to borrowing rates and profits. As to borrowing rates, it would be better to predict the rate as LIBOR plus a fixed percentage. Turning to profits, the utilization of profit ratios of comparable independent enterprises coupled with critical assumptions, historical industry data as well as ranges would be appropriate. See 2022 OECD TP Guidelines, ¶4.136, ¶4.138.

The 2022 OECD TP Guidelines prefer bilateral or multilateral APAs to unilateral APAs. The former types are more likely to ensure that a final arrangement will reduce the risk of double taxation, will prove to be equitable to all tax administrations and taxpayers involved, and will provide greater certainty to the taxpayers involved. 2022 OECD TP Guidelines, ¶4.141.

6. Contents of a Settlement Agreement
Once preliminary consultations have been conducted, a settlement agreement will need to be recorded pursuant to the 2019 Decree. See Decree No. 2019/13003, ¶2.3.

The settlement agreement regarding advance pricing agreement should contain the following:

(1) The names and addresses of the (potential) bodies to which the agreement applies;
(2) The facts, legal acts, transactions, time of transactions, agreements or arrangements and the years or financial years for which the agreement applies;
(3) A description of the tax consequences, which in the case of an APA means a description of the agreed methodology and related matters, such as agreed comparables or a range of expected results;
(4) A record of the relevant terms on which the agreement is based and, in the case of an APA, the relevant terms which form the basis for applying and calculating the method, such as sales figures, costs of sale, gross profit, etc.;
(5) How changes and circumstances are dealt with;
(6) Where applicable, the agreed treatment of tax matters;
(7) The conditions that the interested party must meet in order for the agreement to remain valid, together with procedures that ensure that the interested party continues to meet those conditions;
(8) Critical assumptions on which the ruling is based;
(9) A provision that the settlement agreement immediately loses its validity if a relevant change in the law or a relevant change in regulations based on the law occurs for the settlement agreement in question. A subsequent change in relevant policy rules and case law may also be a reason to terminate an agreement;
(10) A declaration by the taxpayer that no appeal will be made to the exceptions under Article 14, paragraph 2, section (e) of the Dutch Civic Integration Abroad Act (Wet inburgering buitenland);
(11) A provision that the settlement agreement shall cease to be valid if the agreed pricing or methodology is not actually recorded in the agreements concluded between the interested party and the relevant affiliated enterprise or is not actually paid or received,
unless otherwise agreed; and
(12) The term of the settlement agreement.

See Decree No. 2019/13003, ¶7.

IV. Conclusion

Bilateral and multilateral APAs are formed with the intention of providing certainty to taxpayers within a related group as well as avoiding double taxation. See 2022 OECD TP Guidelines, ¶4.141.

Continuing, bilateral, and multilateral APAs can enhance the mutual agreement procedure by significantly reducing the time needed to reach an agreement since competent authorities are dealing with current data as opposed to prior year data that may be difficult and time-consuming to produce. See 2022 OECD TP Guidelines, ¶4.156.

In addition to serving as a means to combat tax avoidance, the disclosure and information aspects of an APA as well as the co-operative character under which an APA is typically negotiated may assist tax administrations in gaining insight into complex international transactions undertaken by an MNE. See 2022 OECD TP Guidelines, ¶4.157.

A final word concerning financial service companies is in order. This article is intended to be a general introduction and overview of APAs under Dutch law. A detailed examination of APAs involving financial services companies is beyond this article’s scope. However, if the reader is interested in financial service companies, he or she should be aware of several things.

A financial services company is specifically defined under Dutch law. See Article 3a of the Implementing Decree to the Law on International Assistance in the Collection of Taxes; Uitvoeringsbesluit internationale bijstandsverlening bij de heffing van belastingen). See van Dam and Dijkstra, 6965 T.M., Foreign Income: Transfer Pricing: Rules and Practice in Selected Countries (M-P).

Before a financial services company can enter preliminary negotiations relating to an APA, it must first satisfy 10 preliminary conditions. It is noteworthy that these preliminary conditions are both detailed and fact specific. See Decree of Dec. 22, 2011, Stb 201, 674; Article 3.1 of the International Assistance Decree; van Dam and Dijkstra, 6965 T.M., Foreign Income: Transfer Pricing: Rules and Practice in Selected Countries (M-P).

If these ten preliminary conditions are satisfied, a Dutch taxpayer must then satisfy two additional conditions. See van Dam and Dijkstra, 6965 T.M., Foreign Income: Transfer Pricing: Rules and Practice in Selected Countries (M-P).

Finally, assuming these twelve conditions are satisfied, a Dutch financial services company must then be prepared to establish remuneration based on two components: (1) payment for the equity put at risk (equity risk remuneration or ERR); and (2) payment for the activities in respect of the funds borrowed and the funds on-lent (financial remuneration or FR). See van Dam and Dijkstra, 6965 T.M., Foreign Income: Transfer Pricing: Rules and Practice in Selected Countries (M-P).

The ERR can be computed under Dutch law by first multiplying the difference between: (1) the interest on subordinated loans (RA); and (2) the interest on comparable secured loans (RS) with the equity at risk (EV). This outcome is then divided by the outstanding loan amount (LUG). See van Dam and Dijkstra, 6965 T.M., Foreign Income: Transfer Pricing: Rules and Practice in Selected Countries (M-P).

The FR is comparable to a payment that is charged by banks and other financial institutions when raising funds from capital markets for corporate clients. See van Dam and Dijkstra, 6965 T.M., Foreign Income: Transfer Pricing: Rules and Practice in Selected Countries (M-P).

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Patrick Beattie‘s practice areas include tax planning, tax controversy, estate planning, insurance coverage actions, toxic tort litigation, and commercial litigation in the Philadelphia area.

This article, initially prepared as a continuing legal education class at the Jenkins Law Library in Philadelphia in 2022, has been extensively modified and additional sections, including content on the revised 2022 OECD TP Guidelines and the Dutch Ministry of Finance’s new decree replacing Decree 2018/6865, have been added prior to publication. The information contained herein is of a general nature and based on authorities that are subject to change. This article represents the views of the authors only and are for informational purposes only.