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RED Tax Specialists : Advance Pricing Agreements (APAs) in the Netherlands: times of uncertainty

APAs are a well-known tool in the transfer pricing (TP) practice that allow for upfront certainty on the treatment of intercompany transactions / dealings for a certain period. An APA can be negotiated and concluded unilaterally (i.e. between one jurisdiction and a taxpayer), bilaterally (i.e. between both jurisdictions to a transaction / dealing and a taxpayer) or multilaterally (i.e. with more than two jurisdictions).


Completing an APA on the TP of intercompany transactions in the Netherlands: a greater level of certainty vis-à-vis the risk of double taxation and TP disputes becoming less popular.

An APA stipulates, in advance of controlled transactions, an appropriate set of criteria such as method, comparables and appropriate adjustments thereto, and critical assumptions as to future events (e.g., economic conditions, market share, end-sales price and sales volumes, functions and risks, exchange rates, interest rates, credit rating and capital structure, classification of income and expenses) which must be met by the MNE for the determination of the TP for such transactions over the fixed validity period of the APA.

The OECD advocates bilateral APA programmes, recognising that APAs provide a greater level of certainty in both treaty partner jurisdictions, lessen the likelihood of double taxation and may proactively prevent TP disputes. 


Insight into complex international transactions


Seeking to conclude an APA is a proactive approach that aims at avoiding double taxation in relation to future years, on the contrary to other approaches that seek to avoid double taxation once questions are already being raised (unilateral appeal, settlements, litigation, mutual agreement procedures and recourse to the EU Arbitration Convention). While both ways lead to uncertain outcomes, entail costs and have timeframes longer than 12 months to be completed, trying to conclude an APA shifts the process mentality from retrospection to design. In an APA procedure, governments gain insight into complex international transactions in a non-adversarial way and environment in close contact with the taxpayer.

Observation: many APAs are not renewed

Within the Netherlands, we currently observe that many APAs are not renewed, and little APA processes are started. This could be caused by the fact that as per 1 July 2019, the Dutch Tax Authorities (DTA) apply stricter requirements to APA requests and publish them anonymously regardless of whether an APA is ultimately concluded or not. Another reason that could trigger a reason not to start or renew an APA is the current COVID-19 pandemic, as taxpayers might prefer flexibility in relation to the application of its transfer pricing policy over upfront certainty. 


APA’s concerns raised by the COVID-19 pandemic and related recommendations

As previously mentioned, an APA contains critical assumptions as to future events. Supply chain disruptions caused by the pandemic may have direct implications on such critical assumptions for transactions under the terms of an existing APA or of an APA being negotiated. As per the OECD Guidance on the TP implications of the COVID-19 pandemic, it should be analysed on a case-by-case basis whether the pandemic and the resulting change in economic conditions have led to a breach in these critical assumptions used.

The conclusion by either the DTA or the taxpayer that the critical assumptions agreed in an APA are no longer met due to the pandemic may lead to the following outcomes:

  • Upon agreement of the taxpayer and DTA, revision and application of the APA
  • In absence of agreement, cancellation of the APA which remains in effect up to the cancellation date or complete revocation of the APA deemed to never have been concluded
  • Adjustment of taxpayer positions filed with the competent authorities.


OECD Guidance

In addition to the DTA, the OECD provided guidance on the treatment of APAs in relation to COVID-19. The OECD Guidance advises MNEs to:

  • Notify tax authorities as soon as there is awareness of a breach of critical APA assumptions
  • Document failure(s) to meet critical APA assumptions, explaining the anticipated effects of the pandemic on the agreed TP methodology
  • The OECD fosters a flexible and collaborative approach in considering the following:
  1. A split of the APA terms to account for specific time periods impacted by the pandemic disruptions, and a separate set of APA terms valid in the long run under normal business circumstances;
  2. Amendments to the APA terms retrospectively or by extension of the covered period;
  3. Allow for the use of cumulative or term test methods.



Given the current circumstances, the conclusion of APAs in the Netherlands is more uncertain than it ever was. As to the effective APAs, there is no one size fits all solution to their treatment by the DTA in case of deviation from existing TP policies purely due to COVID-19. Instead, it is critical to consider on a case-by-case basis if there are grounds that would entail a breach of the critical conditions. It is therefore recommended to follow the OECD advice and proactively contact the DTA in case of doubts relating to the validity of an APA. 

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If you need advice or if you any have other questions regarding APAs, please feel free to contact us:

Grégoire de Samie - RED Tax Specialists BV

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