16 October 2025 Netherlands | Court of Appeal decides significant Dutch transfer pricing case largely for tax administration, but overturns multimillion-euro penalty
The Court of Appeal of Amsterdam, on 11 September 2025, delivered its judgment in a significant transfer pricing case in the Netherlands, largely upholding the tax authorities' position. The appellate decision highlights the Dutch tax authorities' strict approach to transfer pricing, the importance of robust documentation and arm's-length analyses and the high stakes for multinational groups in restructuring scenarios. The case revolves around several transfer pricing and corporate income tax disputes between a Dutch taxpayer and the tax inspector for the years 2008–2016, specifically:
In addition, the tax inspector imposed several penalties on the Dutch taxpayer for intentionally filing an incorrect tax return and underpaying taxes. The highest penalty concerned the Exit, for which a €125m penalty was imposed. The tax inspector also argued that the burden of proof (which is on the tax inspector for upward transfer pricing corrections) should be shifted to the taxpayer and the standard of proof should be increased. The District Court had ruled on this case in several other decisions on 17 October 2022 and 15 December 2023. Although it is not yet known whether one of the parties (or both) has filed for cassation against this judgment, it is expected that the Supreme Court will need to rule on this case. This Tax Alert focuses on the Court of Appeal's judgment with regard to first three elements listed above: factoring fees, guarantee fees and the Exit. A subsequent Tax Alert will discuss the other elements. A Belgian group company provided factoring services to the Dutch taxpayer, charging fees based on a percentage of turnover, which were significantly higher than the premiums previously paid to third-party insurers. The Dutch tax authorities challenged the deductibility of these fees, arguing they were not at arm's length; further, the authorities criticized calculating the factoring fees based on turnover and advocated for a cost-plus approach instead. A penalty was imposed as well. The Dutch taxpayer paid guarantee fees to its United Kingdom (UK) parent for bonds, calculated as the difference in interest rates with and without the group's credit rating. The tax inspector argued that the taxpayer failed to account for "implicit support" (the benefit of being part of a group, even without a formal guarantee) and had not provided sufficient documentation. Due to a restructuring, the Dutch taxpayer's distribution activities and related licensing rights were moved to the UK, and contracts were terminated and reassigned. The tax inspector asserted that the Dutch entity should have been compensated for the value of the transferred rights, imposing a significant reassessment of €2.75b and a €125m penalty. The Court of Appeal ruled that the Dutch taxpayer had not filed the required tax return because the filed tax return was incorrect regarding the factoring fees, the guarantee fees and the Exit (for more information, see the "Factoring fees," "Guarantee fees" and "Exit" sections of this Tax Alert, below). As a result, the Court of Appeal shifted the burden of proof from the tax inspector to the Dutch taxpayer and increased the threshold from "making plausible" to "making evident." The shifting and increasing of the burden of proof is also referred to in practice as a "sanction," because the burden of proof and the associated risks shift from the tax inspector to the Dutch taxpayer for all elements of the tax return. The taxpayer's incorrect positions for the factoring fees, guarantee fees and Exit cause the burden of proof sanction to also apply to the other elements (i.e., as enumerated in the list above: (4) remuneration of intercompany transaction (profit split or cost-plus); (5) royalty payments; (6) interest deductions on long-term obligations; (7) deduction of reorganization costs; and (8) deduction of costs for a product launch). The Dutch taxpayer argued that this burden-of-proof sanction could not be applied in transfer pricing disputes, but the Court of Appeal rejected this position. Contrary to the tax inspector, the Court of Appeal found no indications in the law or in legislative history to support the view that this doctrine cannot be applied in the case of transfer pricing corrections. If this case goes to the Dutch Supreme Court, a judgment on this element is likely as well. A Belgian group company provided factoring services to the Dutch taxpayer, charging a fee composed of two elements: a risk premium and an administrative fee. These services involved the purchase and management of receivables, with fees calculated as a fixed percentage of the invoiced turnover, rather than the actual credit-risk exposure. Prior to engaging the Belgian group company, the Dutch taxpayer had insured its receivables with independent insurers. The premiums paid under these third-party arrangements were significantly lower than the fees charged by the Belgian entity — ranging from €118k to €438k annually, compared to €2.5m under the related-party arrangement. The tax inspector used these historical comparisons to demonstrate that the fees paid to the Belgian entity were disproportionately high. The tax inspector challenged the deductibility of the factoring fees, arguing that they were not at arm's length. Specifically, the tax inspector asserted that the risk premium should be applied on the actual risk-bearing amount, not the turnover, and the administrative fee should be based on actual service costs, not scaled with turnover. Therefore, the tax inspector proposed a cost-plus approach. In addition, penalties were imposed for intentionally filing an incorrect tax return to a combined amount of €2.2m. The Court of Appeal largely sided with the Dutch tax authorities. The Court found that the benchmarking analysis lacked robustness, particularly in justifying the turnover-based calculation method. For the risk-premium element of the factoring fee, the Court agreed that a risk-related fee was appropriate. It accepted the tax inspector's recalculation, which used the same risk rate but applied it to the actual credit exposure, resulting in a significantly lower fee. For the administrative-fee element, the Court rejected the turnover-based fee, accepted the tax inspector's cost-based approach and agreed that only a portion of the fees should be deductible. The Court of Appeal ruled that the Dutch taxpayer had not filed the required tax return in relation to the factoring fee and should have known the factoring fees were not arm's length. The Dutch taxpayer knowingly accepted the risk that the fees might not be fully deductible, the Court concluded. The Court of Appeal largely upheld penalties relating to the factoring fees, concluding that the Dutch taxpayer acted with at least conditional intent by deducting the factoring fees despite their questionable arm's-length nature. The Dutch taxpayer issued bonds and its UK parent company acted as a guarantor, which enabled the Dutch taxpayer to benefit from the group's higher credit rating, resulting in lower interest rates on the bonds. From 2008 to 2016, the Dutch taxpayer paid its UK parent company guarantee fees, calculated as the difference between the interest rate with the group rating and the rate based on the Dutch taxpayer's stand-alone credit rating. The tax inspector challenged the deductibility and arm's-length nature of the guarantee fees, arguing that the Dutch taxpayer failed to account for implicit support — the notion that group affiliation alone enhances creditworthiness, even without an explicit guarantee. The tax inspector contended that the Dutch taxpayer incorrectly assumed its derived rating equaled its stand-alone rating and had not provided adequate documentation to justify this assumption. The Court of Appeal upheld the tax authorities' view, emphasizing that the Dutch taxpayer's integral role in the group meant that external creditors would reasonably expect group support for the issued debt. As such, the Dutch taxpayer's credit rating would have been significantly enhanced due to group affiliation, even without a formal guarantee. Concluding that a separate remuneration for the guarantee was not at arm's length, the Court denied the full deduction of the guarantee fees for all years under review. Finding that the Dutch taxpayer had not convincingly demonstrated the arm's-length nature of the fees and had not filed the required tax returns, the court shifted and increased the burden of proof for several of the years in dispute. The Court noted that from 2013 onward, the concept of implicit support was sufficiently established in both the Organization for Economic Co-operation and Development (OECD) Transfer Pricing (TP) Guidelines and the Dutch TP Decree. The Court rejected the Dutch taxpayer's reliance on internal and external reports, as these did not adequately address implicit support or substantiate the arm's-length nature of the fees. As part of a business restructuring, the group decided to move its distribution principal activities from the Netherlands to the UK. As a result, the license agreements allowing distribution rights concluded by the Dutch entity were terminated and concluded separately by the UK entity, taking into account the termination period included in these contracts. Similarly, all intercompany contracts related to the purchase of goods and the local distributors were terminated and the new principal entity entered into new contracts (i.e., the Exit). The tax inspector concluded that the Dutch taxpayer should have been remunerated for the termination of the license agreements and reassessed the tax at €2.75b. In addition, a €125m penalty was imposed for an incorrectly filed tax return and underpayment of tax. The Court of Appeal largely agreed with the District Court's decision, specifically that there should be compensation for the transfer of activities from the Netherlands to the UK. The Court of Appeal took the position that the intercompany license agreement was non-businesslike because it did not include compensation for the value of the rights that the licensee benefited from upon termination. The Court of Appeal further noted that contractual rights can be seen as valuable intangibles and that, if such contracts are transferred (or surrendered) between associated enterprises, the transferor should receive remuneration in line with the arm's-length principle. Specifically, concerns have been expressed about cases in which an entity voluntarily terminates a contract from which it receives a benefit, allowing a foreign associated enterprise to enter into a similar contract and benefit from the profit potential attached to it. The value attributable to the rights should, according to the Court of Appeal, take into account the value of the rights transferred from the perspectives of both the transferor and the transferee. The Court upheld an overall adjustment amounting to €1.3b. The Court of Appeal rejected the tax inspector's argument for a gross-up, ruling that these increases were not reasonable because they were not sufficiently substantiated and/or were disproportional. The Court did not rule on whether a gross-up would be required under the OECD TP Guidelines — an element that is often at issue in practice. The Court of Appeal ruled that the Dutch taxpayer did not file the required tax return, in part based on the decision on the Exit. As a result, the Court shifted the burden of proof to the Dutch taxpayer and increased the threshold to "making evident." The Dutch taxpayer argued before both the District Court and the Court of Appeal that this penalty should be annulled because:
The Dutch taxpayer also submitted expert opinions and argued that its position was defensible (in Dutch: pleitbaar standpunt). Although the District Court had largely upheld the penalty, the Court of Appeal ruled that the Dutch taxpayer did not "accept" the significant risk that too little tax would be levied. According to the Court of Appeal, a letter that the Dutch taxpayer sent to the tax inspector, before submitting the tax return, included the tax implications of the Exit and referred to earlier correspondence and discussions with the tax inspector. Furthermore, the letter indicated that the Dutch taxpayer realized the tax inspector had a different opinion on this matter and offered to provide further information and to engage in further discussions. Based on these facts, the Court of Appeal concluded that the tax inspector had not demonstrated that the Dutch taxpayer had intended to file an incorrect tax return regarding the Exit. Therefore, the Court of Appeal annulled the imposed penalty. The outcome of this case reinforces the Dutch tax authorities' robust approach to transfer pricing disputes and highlights the challenges multinational groups face when undertaking restructurings and transferring functions and/or assets. Dutch taxpayers should thoroughly review their intra-group financing, guarantee structures and analyses undertaken as part of business restructurings to ensure compliance with the arm's-length principle. Further, Dutch taxpayers should ensure that the position taken in the tax return is properly supported and in line with transfer pricing principles to reduce the possibility that the burden of proof will be shifted and increased. The case also demonstrates that consultation with the Dutch tax authorities before submitting the tax return is only sufficient for avoiding a penalty in very specific cases. Therefore, if in doubt regarding the transfer pricing position, it is advisable to seek advice from a knowledgeable tax advisor.
Document ID: 2025-2095 | ||||||
