Revised Policy on (1) Permanent Establishments of VAT Groups and (2) Transfer Pricing


On July 5, 2022, the Dutch State Secretary for Finance published an amendment to the Dutch Value Added Tax Decree (“VAT“) treatment of permanent establishments (the “Decree“). The modification of the decree is linked to the judgment of the European Court of Justice (“ECJ“) in the Danske Bank case of March 11, 2021 (C-812/19). The revised policy described in the amendment will come into force on 1 January 2024 and is likely to have significant consequences for the Dutch VAT treatment of cross-border supplies between a registered office and a permanent establishment if the registered office or permanent establishment is included in a VAT group (btw fiscal eenheid) in the EU.

On July 1, 2022, the Dutch State Secretary for Finance published a new transfer pricing decree replacing the previous version from 2018, but also replacing the decree covering questions and answers on financial services companies, called financial intermediaries (Dienstverleningslichamen or DVL), from 2014.

In paragraph 1 of this Tax Alert, we will 1 briefly elaborate on the current policy on permanent establishments and VAT groups, the published modification of the decree and the impact of the new policy. In paragraph 2, we will briefly discuss some of the relevant changes to the Transfer Pricing Decree.

1. The decree on the Dutch VAT treatment of permanent establishments

Background and current policy on permanent establishments and VAT groups

As a general rule, a registered office and a permanent establishment are deemed to be treated as a single VAT taxable person and therefore (cross-border) supplies between a registered office and a permanent establishment do not fall within the scope of the Dutch VAT (case ECJ FCE Bank – C -210/04). However, an exception to this principle derives from the ECJ Skandie case of September 17, 2014 (C-7/13). It emerges from the Skandia case that cross-border supplies between a head office and a foreign fixed establishment where the foreign fixed establishment is included in a foreign VAT group are subject to VAT (unless a VAT exemption applies ).

Before the CJEU delivered its judgment in the Skandia case, the Dutch Supreme Court ruled in 2002 that a Dutch VAT group would take over any foreign head office or fixed establishment. In other words, if a Dutch VAT group is in place, the foreign head office or the foreign fixed establishment, respectively, is also included in the Dutch VAT group. Under Dutch case law, cross-border supplies between a registered office and its permanent establishment do not fall within the scope of Dutch VAT.

Given the ambivalence between the Skandia case and Dutch case law, the question has arisen whether and to what extent the Skandia case exception applies in the Netherlands. The decree provided clarifications in this respect and the Dutch State Secretary for Finance confirmed that the Skandia case does not apply in Dutch practice: cross-border transactions between head offices included in a Dutch VAT group and their Foreign fixed establishments were therefore (to date) considered to fall outside the scope of Dutch VAT.

New policy as of January 1, 2024

On March 11, 2021, the CJEU ruled in the Danske Bank case that a registered office located in an EU Member State and forming part of a VAT group must be considered as a separate VAT taxable person from its establishment. stable located in another EU Member State (also referred to as the “reverse Skandia” case). The ECJ clarified in the Danske Bank case that the VAT Directive contains a certain territorial limitation for VAT groups and that it is not possible to include foreign fixed establishments of a Member State in a VAT group of another Member State.

After the ECJ judgment in the Danske Bank case, the validity of Dutch practice and Dutch case law has been debated in the literature and the Dutch State Secretary for Finance has now issued an amendment to the current Dutch policy . Since January 1, 2024, foreign head offices and foreign fixed establishments can no longer be included in a Dutch VAT group. This effectively means that supplies between head offices and permanent establishments will fall within the scope of Dutch VAT if one of these establishments is included in a VAT group in another Member State. The amendment to the decree mentions that the case law of the Dutch Supreme Court from 2002 has lost its relevance for the assessment of the scope of the VAT group in the Netherlands. The amendment also clarifies that it only concerns VAT groups within the EU. To allow affected VAT entrepreneurs to prepare for the change, the revised policy will come into effect on 1 January 2024.

Impact of the new policy

As indicated above, a head office which is part of a Dutch VAT group and a foreign fixed establishment (or a foreign head office and a fixed establishment which is part of a Dutch VAT group) will become separate taxable persons from of 1 January 2024. Therefore, cross-border supplies between the Dutch VAT group and the foreign head office or foreign fixed establishment will fall within the scope of VAT. Being considered as a separate taxable person for VAT purposes could, for example, have a negative impact on the deductibility of VAT and it has to be assessed whether a VAT exemption would apply to supplies between a registered office and his permanent establishment which fall within the scope of VAT. Every group structure comprising permanent establishments and VAT groups in the EU will be affected by the new policy, but the precise impact for each group structure must be assessed on a case-by-case basis.

2. The transfer pricing decree

This updated decree provides additional guidance on the application of the arm’s length principle and the view of the Dutch State Secretary for Finance where the OECD guidelines leave room for interpretation, but also reflects a fundamental change in the way transfer pricing is handled for financial intermediaries.

Previously, the guidelines on financial intermediaries were always the subject of a separate decree (which has now been repealed). The new transfer pricing decree now includes very specific guidance on financial intermediaries and deviates from the old guidance, which stipulated that comparable independent parties were remunerated on the basis of the underlying transaction amounts, which was the basis of the typical “spread” approach between claim and payable for financial intermediaries. In the new decree, three types of financial intermediaries are identified according to their level of control of the underlying risks and their financial capacity to bear these risks (for example, their level of capital): (i) the control total, (ii) no control and (iii) the financial intermediary shares control with the rest of the group. Each situation is treated differently:

  1. Full control and affordability: In this case, it’s about pricing each business-to-business transaction on its own merits. It is specified that if the borrowings of financial intermediaries would not have been possible without a social guarantee, these borrowings would be reclassified as a capital contribution. In this regard, according to the decree, there may be tension here between the OECD guidelines and Dutch case law and it is mentioned that the OECD guidelines are at the forefront in cases where a taxpayer seeks prior certainty to ensure that this position can also be defended internationally.
  2. Absence of control or lack of financial capacity: in this case, the financial intermediary is only entitled to a commission based on its own operating expenses. This situation may imply that the financial intermediary cannot be considered the beneficial owner of the incoming cash flows.
  3. Sharing of risk control: in this situation, the risks that may materialize must also be shared and it is suggested that it is not common practice to contractually limit the risks for the financial intermediary.

The new decree does not contain any specific guidance on the possible ways to determine that a financial intermediary has sufficient capital to preserve the financial capacity required for a transaction, or what substance is required to have full control as an intermediary. financial. Given the significant change in approach, it would have been welcome to provide more clarity, including on the transition from previous practices (especially since there are no grandfathering rules).

Also considering group guarantees, the approach of the new decree has been significantly revised, the most significant changes being the statement that implicit support must be reflected in any analysis of guarantee costs, but also the possibility for authorities Dutch tax authorities to consider all or part of a loan to a third party with a company guarantee in the form of a loan to the guarantor followed by a capital contribution to the borrower, when the guarantee makes it possible to increase the capacity of loan. The new decree stresses the importance of an analysis of debt capacity when external borrowings are covered by a corporate guarantee, as it is recognized that a (partial) requalification is not fully in line with case law Dutch and thus creates uncertainty for taxpayers in the Netherlands.


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