Global Insight | April 2018

Transfer pricing and salary splits in the Netherlands

German entrepreneurs, engaged in cross-border activities with the Netherlands, face a number of challenges in relation to salary splits and transfer pricing.

These challenges are coupled with the pressure of the 1 May 2018 mandatory deadline requiring Dutch companies, who are part of a multinational group with a consolidated turnover of more than €50m,to prepare and file master and local files in the Netherlands. In case global turnover exceeds €750m, preparing country-by-country reports is also required as well as notifying the tax authority in respect of the transfer pricing. The obligations to prepare a local and a master file are also applicable when it concerns a small-sized subsidiary entity.

An international salary split applies when the salary of an employee is assigned to two or more countries. In this situation it will have to be assessed which country is entitled to levy taxes on earned income. With respect to directors' remunerations, the tax treaty between the Netherlands and Germany is in accordance with the OECD model treaty. Germany applies the same credit method to prevent double taxation. On the grounds of the tax treaty, the Netherlands also applies the credit method. However, the exemption method may also be applied if based on a tax authority's decision. Directors will always have to file an official request thereto.

Businesses should consult and engage an expert to ensure salary splits and transfer pricing are performed correctly.