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Do you need support and advice about transfer pricing?
Do you need support and advice about transfer pricing?

Master File and Local Files

Additional documentation obligations have been introduced for multinationals whose total group income exceeds EUR 50 million per year. These taxpayers have to apply new rules for transfer pricing effective for the financial year that commences on or after 1 January 2016.

Under these new obligations, the multinational must create a Master File and multiple Local Files. The Master File includes information about the group’s operations, functions and risks and about the cross-border intercompany transactions within the group.

Each Local File describes the separate operations and functions of the entity established in the country in question, and explains how the intercompany prices for the transactions between the associated group entities have been established and can be substantiated. Based on this documentation, the country’s tax authorities can then determine whether they may levy tax on a ‘fair share’ of the group’s profits.

For multinationals operating in the Netherlands, it is important to be aware that this is one of the few countries where the calculations are based on consolidated group income. Most countries look at the local individual taxpayer’s revenues and apply other (generally higher) thresholds.

In concrete terms, this means that the new obligations are more likely to come into play if the group has an establishment in the Netherlands – even if the Dutch establishment is only a small part of the overall group.

In practice, the Dutch rules are unknown, or at least not sufficiently clear, to international head offices. As a consequence, they are at risk of being non-compliant with these obligations.

As matters stand, the Dutch tax authorities require the documentation to be made available within a reasonable space of time if and when requested. This means that the taxpayer’s records must include the appropriate documentation by the time that the entity files its 2016 corporate income tax return.


The Master File and the Local Files are considered to be part of the taxpayer’s accounting system. Under Dutch tax law, separate penalties are imposed for non-compliance with the recordkeeping obligation: the rule that taxpayers have to meticulously record their transactions and other business.

The system of Master File and Local Files falls within the scope of these existing penalties. Failure to provide the appropriate transfer pricing documentation carries a maximum fine of EUR 5,278 plus up to 100% of any transfer pricing adjustments imposed, as well as potentially also resulting in double taxation and reversal of the burden of proof.

For most multinationals with less than EUR 50 million in revenue, the recordkeeping obligations will remain the same as before 1 January 2016. The new rules will only be triggered if the group’s revenue exceeds this threshold. However, if the group has an establishment in another country that does not apply this minimum, the Dutch establishment must also provide the additional transfer pricing documentation.

Country-by-Country Reporting

Another new rule that applies from the 2016 financial year forward is the requirement to prepare an annual Country-by-Country Report. Any multinational whose group revenue is EUR 750 million or more must prepare such a report and file it with the tax authorities in the country where the group’s head office is established. Those tax authorities will then share the information from the report with the tax authorities in the other countries concerned.

Details that must be disclosed in the Country-by-Country Report include revenue, profit, taxable income and corporate income tax payable in the countries in which the group operates.

Failure to present the requested information and documents within a reasonable amount of time carries a substantial fine: up to EUR 820,000 for major enterprises with revenue in excess of EUR 750 million.

Dutch taxpayers that are part of such groups have an obligation to notify the Dutch Tax Authorities, no later than 1 September 2017, of the country where the group’s Country-by-Country Report will be prepared. As a rule, this is the country where the group’s head office is situated.

Given the penalties and the amounts involved, it is important to allow ample time to ensure proper compliance with the new requirements. Contact our advisers to find out more.

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Gijs Vernoij
Tax Director +31(0)6 281 20 194 +31(0)76 53 03 800
Edgar van Hassel
Senior Tax Advisor +31(0)6 219 52 576 +31(0)76 53 03 800