Tax Certainty Through Dutch APAs

The Netherlands offers internationally respected procedures for obtaining Advance Pricing Agreements (APAs), providing taxpayers with upfront clarity on their transfer pricing positions. An APA is a binding agreement between a taxpayer and the Dutch tax authorities regarding the application of the arm’s length principle to one or more cross-border intercompany transactions.

This legal certainty gives multinationals and cross-border investors the confidence to structure their operations efficiently and compliantly within the Dutch tax framework.

APA Procedure: OECD-Aligned and Reliable

The Dutch APA practice was formalized in 2001 and updated in 2004 to fully align with the OECD Transfer Pricing Guidelines. As a result, the APA process in the Netherlands is widely regarded as transparent, predictable, and consistent with international standards.

An APA can be:

• Unilateral – agreement with the Dutch tax authority alone,
• Bilateral – coordinated with another tax jurisdiction, or
• Multilateral – covering multiple tax authorities across different countries.

An APA is typically concluded for a term of four years, with the possibility of retroactive effect in specific cases.

Scope of Dutch APAs

A Dutch APA may apply to:

• A single intercompany transaction (e.g. licensing, lending, or procurement),
• A set of transactions within a business unit, or
• The entire transfer pricing policy of the taxpayer’s Dutch or international group operations.

Financial Services and Transfer Pricing

Intragroup financial services – such as back-to-back financing or licensing activities – fall under the Dutch financial services resolution. These are subject to strict conditions when it comes to substance and economic risk.

A Dutch entity qualifies as a financial services company if at least 70% of its operations consist of intragroup financing and/or licensing (excluding participations). Advance certainty is only possible if the entity also requests a ruling on:

• The arm’s length nature of the remuneration, and
• The appropriate transfer pricing method.

Substance Requirements for APA Eligibility

The Dutch tax authorities will only grant an APA if the taxpayer meets minimum substance criteria, which include:

• At least 50% of directors are Dutch tax residents;
• Directors possess sufficient professional expertise;
• The entity is effectively managed in the Netherlands;
• Its principal bank accounts and bookkeeping are maintained in the Netherlands;
• The entity has sufficient equity relative to its functions, assets, and risks.

These requirements ensure the entity is not a mere conduit, but a genuine business operation.

Economic Risk Requirement

Where financial services are involved, the taxpayer must bear real economic risk. Under Dutch rules, a financing entity must maintain equity capital of at least:

• 1% of the outstanding loan portfolio, or
• €2,000,000, whichever is lower.

For intragroup licensing arrangements, the equity at risk must equal the lower of:

• €2,000,000, or
• 50% of the annual royalty inflow.

If these requirements are not met:

• Foreign withholding tax credits may be denied,
• Interest or royalties may not be treated as taxable income, as the Dutch entity would be deemed a service provider only.

Why Work with TaxGate?

At TaxGate, we assist clients in structuring and documenting APA applications, navigating negotiations with the Dutch tax authorities, and ensuring long-term compliance with substance and transfer pricing rules.

Considering an APA in the Netherlands?
Let us help you secure the clarity and legal certainty your group needs.