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On 9 March 2018, the Dutch tax authorities released internal documents concerning pricing agreements with major multinationals relating intra group financing activities, following the abolition of the preferential regime for the income on intra group financing and acquisition funds (Group Financing Regime in Dutch “CFA”) by the European Commission in 2003. The publication followed a request based on the Government Information Act, which allows access to internal policies to ensure a level playing field. Taxand Netherlands examines the release.
It can be questioned whether the former policy is in line with current post-BEPS views on intra-group financing activities and cash boxes. In the event this would not be the case potentially State Aid (in brief: a selective financial benefit granted by the government to a single or limited group of taxpayers) might be triggered, the benefits of which should be reclaimed by the Dutch government.
According to OECD BEPS Action plan 8-10 cash box/capital rich entities without any other people functions or relevant activities should only be entitled to a risk free return. Any excess profits should be taxed where the value creation takes place. Furthermore, the benefits of group financing activities and cash pools should be divided amongst the participants.
Discover more: Former Dutch TP policy regarding financing activities published
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To determine whether State Aid can be considered a potential risk, one should perform a detailed functional, risk and assets analysis of the entities involved in agreements with the tax authorities. Also, comparable situations without rulings with the tax authorities should be reviewed.