Netherlands announces new policies for resolving cross-border tax disputes

By Jian-Cheng Ku & Rhys Bane, DLA Piper Nederland N.V., Amsterdam

The Netherlands government, on June 22, announced new policies regarding the mutual agreement procedures (MAPs) and arbitration procedures in its tax treaties. Both provisions provide mechanisms for resolving cross border tax disputes.

The new MAP decree replaces the MAP decree that has been in place in the Netherlands for 12 years. Since then, the mutual agreement procedure has been updated to follow OECD’s BEPS Action 14.  Many Dutch bilateral tax treaties, as well as the EU Dispute Resolution Directive, also now provide for an arbitration procedure if the MAP does not result in the resolution of a tax dispute.

Changes since previous decree

Among the most important changes announced by the Netherlands government, is the inclusion of the procedure under the Tax Arbitration Act, which is the Dutch implementation of the EU Dispute Resolution Directive and several approvals by the Netherlands government on corresponding adjustments outside of the statute of limitations and the situation where mutual agreement cannot be reached due to judicial proceedings abroad.

In addition, the new policy includes a description of how the Netherlands competent authorities will deal with the mutual agreement procedure in triangular cases.

It also confirms that the criteria for requesting a bilateral or multilateral advance pricing agreement (APA) are the same as requesting a unilateral APA.

Mutual agreement procedure

According to the new policy, the mutual agreement procedure can be initiated under the Tax Arbitration Act, a bilateral tax treaty, or the EU Arbitration Convention.

The Tax Arbitration Act and the EU Arbitration Convention only apply in relation to EU Member States, whereas the Netherlands has bilateral tax treaties with approximately 90 jurisdictions, all of which contain a provision allowing for the initiation of the mutual agreement procedure.

The Tax Arbitration Act and bilateral tax treaties generally allow for a MAP regarding the interpretation of tax treaties (in a specific case) or transfer pricing disputes. The EU Arbitration Convention only applies to transfer pricing disputes.

The exact timing and deadlines with respect to the mutual agreement procedure under bilateral tax treaties differ, whereas the Tax Arbitration Act and the EU Arbitration Convention have a standardized process for the mutual agreement procedure.

If the mutual agreement procedure under the Tax Arbitration Act ends due to a judicial ruling in another State, the Netherlands may provide unilateral relief (even after the time limit has lapsed).

The Netherlands competent authority may, under certain conditions, grant discretionary relief outside the time limit of 5 years if a mutual agreement is reached.

The Netherlands competent authority also handles requests for bilateral and multilateral advance pricing agreements. The same information required for a unilateral advance pricing agreement has to be provided by the taxpayer. In addition, the same prerequisites that apply for obtaining a unilateral advance pricing agreement also apply to the bilateral and multilateral advance pricing agreements.

Arbitration

The mutual agreement procedure is an obligation to use best endeavors and not an obligation to achieve a specific result. This means that the mutual agreement procedure may not result in a definitive outcome for the taxpayer.

Under the Tax Arbitration Act, bilateral tax treaties that contain an arbitration provision, and the EU Arbitration Convention, an arbitration procedure can be started at the initiative of the taxpayer if the mutual agreement procedure does not result in the (full) resolution of the dispute and the required time period (generally two or three years) has expired. The Tax Arbitration Act and the EU Arbitration Convention have mandatory and binding arbitration. Many Netherlands bilateral tax treaties also contain mandatory and binding arbitration. However, some bilateral tax treaties still contain provisions that only allow for the arbitration procedure to be initiated if one or both of the competent authorities agree.

The Tax Arbitration Act and the EU Arbitration Convention generally contain more detailed procedural rules than bilateral tax treaties.

Our observations

From a taxpayer’s perspective, it is generally preferable to initiate a mutual agreement procedure under the Tax Arbitration Act if there is a dispute with an EU Member State, as the Tax Arbitration Act contains the most procedural safeguards and allows for access to mandatory and binding arbitration.

The Netherlands takes protecting taxpayer’s rights in international tax law seriously, not taking into account the Tax Arbitration Act, all Netherlands’ tax treaties allow for a mutual agreement procedure.

After the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) takes effect with respect to all other jurisdictions, over 40 Netherlands tax treaties will be modified.