On 26 September 2017, the Organisation for Economic Co-operation and Development (OECD) released the first batch of peer review reports relating to the implementation by Belgium, Canada, the Netherlands, Switzerland, the United Kingdom and the United States of the Base Erosion and Profit Shifting (BEPS) minimum standards on Action 14 on improving tax dispute resolution mechanisms. These jurisdictions had also requested that the OECD provide feedback concerning their adoption of the Action 14 best practices, and therefore, the OECD has also released six accompanying best practices reports.
Overall the reports conclude that these jurisdictions meet most of the elements of the Action 14 Minimum Standard. In the next stage of the peer review process, each jurisdiction's efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored.
The Netherland's peer review report contains an evaluation of its implementation of the Action 14 minimum standard, through an analysis of its legal framework and administrative practice relating to the mutual agreement procedure (MAP), as governed by its tax treaties, domestic legislation and regulations, as well as its MAP program guidance and the practical application of that framework. The report identifies areas for improvement, includes peer input and depicts changes adopted and plans shared by the Netherlands to implement elements of the Action 14 minimum standard. Overall, the Netherlands meets most of the elements of the Action 14 minimum standard. Where it has deficiencies, it is working to address them.
Under Action 14, countries have committed to implement three overarching principles that represent a minimum standard with respect to the MAP process by incorporating these principles into domestic law and/or their treaty interpretation and application. The minimum standard principles include:
- Allowing taxpayers access to the MAP process when the requirements for taxpayers to access the MAP process are met
- Assuring that domestic administrative procedures do not block access to the MAP process
- Implementation by countries of Article 25 of the OECD Model Tax Convention (OECD MTC) in good faith
The Dutch peer review report comprises of the following four sections:
- Preventing disputes
- Availability and access to MAP
- Resolution of MAP cases
- Implementation of MAP agreements
The Netherlands has a large tax treaty network with over 90 tax treaties and has signed and ratified the European Union Arbitration Convention. It has an established MAP program and extensive experience with resolving MAP cases. On 31 December 2016, approximately 300 MAP cases were pending, of which approximately 40% relates to transfer pricing cases. The Netherlands' competent authority was found to use a pragmatic approach to resolve MAP cases in an effective and efficient manner.
The Netherlands meets the Action 14 minimum standard concerning the prevention of disputes.
Cases may arise regarding interpretation or application of the tax treaty that do not necessarily relate to individual cases, but are of a more general nature. All of the Netherlands tax treaties contain a provision equivalent to Article 25(3) first sentence of the OECD MTC allowing the competent authority to solve such cases. Furthermore, the Netherlands has a bilateral Advance Pricing Arrangement (APA) program in place. This APA program also enables taxpayers to request roll-backs of bilateral APAs. The report recommends implementation of a mechanism to monitor the number of APAs with a roll-back request.
Availability and access to MAP
The Netherlands meets most of the requirements regarding the availability and access to MAP under the Action 14 minimum standard.
Seventeen of its tax treaties do not include a provision equivalent to Article 25(1) OECD MTC, which is the basis of the MAP procedure. Six tax treaties do not include a provision equivalent to Article 25(3), second sentence, OECD MTC, allowing competent authorities to consult on the elimination of double taxation in cases not provided for in the tax treaty. The report recommends to include through bilateral negotiations an equivalent provision in the tax treaties that will not be amended by the Multilateral Instrument.
None of the Netherland's tax treaties contain a provision allowing taxpayers to submit a MAP request to the competent authority of either treaty party nor does the Netherlands have a bilateral consultation or notification process in place allowing the other competent authority to provide its views on the case when the objection raised by the taxpayer in a received MAP request is considered not to be justified. However, in the reporting period the Netherlands had provided access to MAP in all eligible cases. Furthermore, it is in the process of introducing a bilateral consultation or notification process for those situations in which the Netherlands' competent authority considers the objection raised by taxpayers in a MAP request not justified.
The Netherlands has comprehensive guidance that provides practical information on MAP. However, this guidance does not include information on the relationship between MAP and audit settlements. The Netherlands indicated that it will publish an updated version of its MAP guidance that will include a section clarifying the relationship between access to MAP and audit settlements. The new guidance will include that audit settlements do not preclude access to MAP.
Resolution of MAP cases
The Netherlands' competent authority was found to use a pragmatic approach to resolve MAP cases in an effective and efficient manner. The performance indicators used are appropriate to perform the MAP function. However, from the peer input it followed that audit personnel of the Netherlands' tax administration (often) attend competent authority meetings and participate in discussions to resolve MAP cases. Although this may not per se cause the Netherlands' competent authority to enter into MAP agreements dependent on the approval or direction of personnel of the Dutch tax administration directly involved in the adjustment, the report indicates that there is a risk that this personnel is or becomes involved in the decision-making process or that it could be perceived by treaty partners that the Dutch competent authority is dependent on approval or direction of this personnel. Further, it is noted that the authority for handling MAP cases related to disputes on resident status of corporate taxpayers is delegated to the Director of Large Enterprises which bears the risk that personnel directly involved in the adjustments at issue may influence the process of resolving these cases.
The Netherlands acknowledges it should explicitly communicate to its treaty partners that auditors attending the meetings are not the auditors directly involved in the adjustments at issue and furthermore that the Netherlands' competent authority is not dependent on approval or direction of the audit personnel that imposed the adjustment. Furthermore, the Netherlands indicated that it is in the process of introducing country-coordinators in its Coordination Group on Transfer Pricing, which is part of the Dutch Tax Administration. These coordinators – who will participate in the competent authority meetings – will be independent from the auditors that applied the adjustment.
On average the Netherlands' competent authority resolved MAP cases within a timeframe of less than 24 months. The average time necessary to resolve transfer pricing cases was 34 months. The current resources for the MAP function in the Netherlands are considered adequate, but more resources may be necessary to accelerate the resolution of transfer pricing cases and to achieve a net reduction of its MAP inventory.
Regarding MAP arbitration, The Dutch tax treaty policy is to incorporate a mandatory and binding arbitration in all of its tax treaties. Furthermore, it will opt for part VI of the Multilateral Instrument which includes a mandatory and binding arbitration provision.
Implementation of Map agreements
The Netherlands meets the Action 14 Minimum Standard as regards the implementation of MAP agreements.
Although the Netherlands does not monitor the implementation of MAP agreements, no issues have surfaced regarding implementation throughout the peer review process. The report recommends that the Netherlands introduces a tracking system.
Twenty-six of the Netherlands' tax treaties do not include a provision equivalent to Article 25(2) second sentence of the OECD MTC, dealing with the implementation of a mutual agreement reached notwithstanding time limits in domestic legislation, nor the alternative provisions provided for in Article 9(1) and 7(2) OECD MTC setting time limits for making adjustments. The report recommends to include through bilateral negotiations an equivalent provision in the tax treaties that will not be amended by the Multilateral Instrument.
Best practice peer review reports
Each assessed jurisdiction can provide information and request feedback from peers on how it has adopted the 12 best practices contained in Action 14 final report. All of the jurisdictions in the first batch of the peer review requested that the OECD provide feedback concerning their adoption of the best practices contained in Action 14 final report, including the Netherlands. However, for most of the best practices, the peers provided only limited input.
The comments provided by the peers confirm the active role of the Dutch competent authority in the OECD fora. It was also indicated that although the formal initiation of the MAP in the Netherlands is generally dependent on the finalization of domestic judicial and administrative proceedings, in practice the competent authority is willing to initiate the MAP simultaneously with pending domestic remedies, and that the Dutch competent authority can deviate from decisions of its domestic courts. One of the peers observed that the Dutch competent authority also accepts cases involving foreign adjustments initiated by a bona-fide taxpayer. Finally, one peer indicated that the Netherlands' competent authority has been amenable to considering multilateral MAPs on a case-by-case basis.
The report shows that the Netherlands has an extensive treaty network and an effective and practical MAP in place. The Netherlands meets most of the elements of the BEPS Action 14 Minimum Standard. The report recommends improvements, including amendment of some of its tax treaties with regard to certain elements of Action 14. The Multilateral Instrument already covers 80 tax treaties. Where needed, the Netherlands will amend the remaining treaties.
Multinationals that are being confronted with taxation not in accordance with the treaty, including double taxation, should consider making use of the efficient MAP process in the Netherlands.