5 Thoughts on a Dutch transfer pricing court case involving a business restructuring

On September 30, 2022, the North Holland Court ("the Court") ruled on a dispute involving the delineation and valuation of a business restructuring for tax purposes. The business restructuring entailed the intercompany reallocation of certain functions of a Dutch company to a Swiss sister company as part of a larger group-reorganization. The taxpayer argued that the transfer was limited to certain assets, resulting in an exit tax valued at EUR 2 million. The Dutch tax authorities (“DTA”) took the view that substantial and core company activities and responsibilities had been transferred from the Netherlands to Switzerland, along with the associated profit potential. The initial assessment of the arm’s length transfer price by the tax authorities was EUR 320 million. The Court appointed an independent expert assigned a minimum value of EUR 85 million to the profit potential transferred. The Court adhered to this valuation.

20 Feb. '23 Marnix Bekkenutte

This case (ECLI:NL: RBNHO:2022:9062) is the second transfer pricing case decided by the North Holland Court in a short period. On October 17, 2022, the same Court ruled on a transfer pricing dispute between British American Tobacco and the DTA. This is also demonstrated by the transfer pricing dispute between a Norwegian fertilizer manufacturer and the DTA, which has recently been referred to the Supreme Court. These decisions indicate a trend in international tax in which transfer pricing is gaining importance and disputes are more likely to lead to litigation.

The business restructuring's rationale & contractual terms

The parties involved in the case at hand are the Dutch division of a food processing multinational that also trades in (food-related) raw materials (“X NL”) and its - per 2007 incorporated - Swiss group company (“X CH”). X NL’s operations consisted of a cocoa processing factory and a soybean processing factory. According to its transfer pricing documentation, before 2007, X NL managed the supply chain for both its businesses (i.e., purchase, production and sales for cocoa and soybean), at its own expense and risk (as in, operated like a fully-fledged manufacturer). Each of the manufacturing facilities had its own trade department.

Marnix Bekkenutte

Marnix is an associate and is currently studying at Tilburg University for a Masters degree in Tax Law

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