Member News

Houthoff | The interplay between transfer pricing and a tax governance code in the Netherlands

On Friday 5 March 2021, the Dutch Ministry of Finance (the “Ministry“) organised a Tax Governance Code webinar. The webinar was held following the release of an essay bundle, Tax governance, social responsibility, and ethicsTime for a tax code? (the “essay bundle“), by the Ministry in December 2020.

While the essay bundle is a local Dutch initiative, it can be seen as a continuation of the ongoing international tax reform which started with the OECD’s BEPS Project in 2013. In this News Update, we explore the relevance of such a tax code for transfer pricing practice.


In 2019, the Dutch State Secretary of Finance (the “State Secretary“) started the discussion about a tax code by introducing the topic in the Tax Policy Agenda 2019 (Fiscale beleidsagenda 2019). The State Secretary believes that a tax code is needed to ensure that tax advisers refrain from helping taxpayers find the edges of tax laws. A tax code would encourage both tax advisers and taxpayers to consider their social responsibility in tax matters. The essay bundle, containing contributions from various stakeholders in the tax field, is aimed at stimulating the discussion about tax governance and social responsibility.

The general motivation for discussing a tax code lies in the increasing social attention on the tax structures implemented by both corporate and private taxpayers. In the essay bundle’s foreword, the State Secretary states that the consideration of tax morality in implementing tax structures is an ethical duty for taxpayers. The consideration of tax morality remains, however, a philosophical exercise. According to the State Secretary, a tax code should contain at least two elements: (i) transparency and (ii) guidelines which discourage tax advisers from operating against the spirit of the law. We elaborate on these two elements below.

Various steps have already been made at different levels towards enhanced transparency in transfer pricing.

Firstly, certain Dutch taxpayers have already had the opportunity to access the horizontal monitoring mechanism (a cooperative compliance programme) for a while. Transparency is one of the three key values on which horizontal monitoring is based, according to the Dutch Tax Authorities, the other two being mutual trust and understanding.

Secondly, on 1 July 2019, the Dutch tax ruling practice was revised to align it with EU and international standards and recommendations as well as to increase its openness and transparency. In this respect, the Dutch Tax Authorities now publish anonymised summaries of advance pricing agreements and advance pricing agreement requests. In addition, Dutch law provides for the automatic exchange of tax rulings as of 1 January 2017.

Thirdly, implementation of Country-by-Country Reporting (“CbCR“) as from 2016 and the recent introduction of mandatory disclosures requirements within the EU are significant steps towards more transparency on taxation, including transfer pricing.

Finally, the Dutch government expressed its preference for introducing multilateral rules on public CbCR. Last month, public CbCR gained momentum within the EU as well, when the EU Council Ministers for Economic, Industrial and Research Policy reached broad majority support to enter into negotiations with the European Parliament to adopt a proposed directive on public CbCR. Although these mechanisms do not cover the full spectrum of taxpayers, they show that transparency can be, and has been, enhanced by means other than a tax code. In particular, developing transfer pricing control frameworks as part of cooperative compliance programmes or on a standalone basis as a voluntary act helps taxpayers to enter a meaningful journey of awareness around implementing ‘good’ and transparent transfer pricing practices. Therefore, it remains to be determined whether, and how, a tax code would contribute to more transparency in the field of transfer pricing. Nevertheless, we welcome this discussion being held among stakeholders.

Guidelines which encourage operating in the spirit of the law
Guidelines that help tax advisers to operate in the spirit of the law are not new. The OECD introduced a chapter devoted to tax in its 2011 edition of the OECD Guidelines for Multinational Enterprises. The first paragraph of this chapter stipulates the importance of transfer pricing compliance:

“Tax compliance includes such measures as providing to the relevant authorities timely information that is relevant or required by law for purposes of […] conforming transfer pricing practices to the arm’s length principle.”

According to the OECD, proper application of the arm’s length principle (“ALP“) requires entities to cooperate with national tax authorities and to timely disclose information which is relevant or required by law regarding its transfer pricing policies.

Timely disclosure of information to the tax authorities is already possible in the Netherlands through horizontal monitoring. Regardless of whether taxpayers qualify for horizontal monitoring, it is always possible to set up a tax/transfer pricing control framework containing the taxpayer’s transfer pricing processes, risks and mitigation measures. A tax/transfer pricing control framework, therefore, is a means to show tax compliance at every level of the taxpayer’s organisation, of which transfer pricing is a prominent part. We regularly prepare transfer pricing control frameworks for our clients and are happy to assist you in preparing and improving your transfer pricing control framework.

While it is certainly important to encourage adherence to transfer pricing rules by requiring taxpayers to submit sufficient and timely information, this is more of an administrative procedure. Therefore, it does not provide full assurance upfront that the spirit of the law has been properly followed for transfer pricing purposes. A more important aspect in this discussion with respect to transfer pricing is the very nature of the ALP. Transfer pricing based on the ALP is not an exact science. It requires the exercise of judgment, as mentioned in paragraph 1.13 of the OECD Transfer Pricing Guidelines (“OECD TP Guidelines“). Therefore, transfer pricing analyses often result in outcomes which are, by definition, driven by a certain level of interpretation and professional judgment. Furthermore, because transfer pricing outcomes are largely driven by, among others, the nature of the business, internal dynamics and key value drivers of a company, they are likely to vary across different companies. In particular, this applies to multinational enterprises owning valuable intangibles. Given that transfer pricing has often been associated with aggressive or abusive tax planning structures in the past, the way in which it will be addressed in a tax code will be significant. The existing OECD TP Guidelines, running to over 600 pages, can, in a way, be seen as the best practices for transfer pricing purposes to encourage operating in the spirit of the law, as they explain how “a somewhat vague concept like the arm’s length principle” can be interpreted and applied.

Various other means that could help to meet the proposed objectives of a tax code also exist, such as the cooperative compliance programmes (e.g. horizontal monitoring, OECD’s International Compliance Assurance Programme), and the possibility of setting up tax and transfer pricing control frameworks, as mentioned before. Furthermore, we note that other general means are currently available to the Dutch Tax Authorities which discourage operating against the spirit of the law, such as invoking the abuse of law (fraus legis) doctrine. Considering the availability of these existing mechanisms, a tax code could even be considered somewhat superfluous for transfer pricing purposes. In any case, the discussion about a tax code should build upon the existing mechanisms and experiences with them to make it as productive as possible.


The discussion on a Tax code is gaining momentum and will remain on the political agenda for a while. Before a conclusion on the topic has been reached, there are different means that taxpayers can utilise to enhance transparency and mutual trust with the Dutch Tax Authorities, such as horizontal monitoring and/or voluntary preparation and implementation of tax/transfer pricing control frameworks.

If you have any further questions or would like to have an extended discussion, please contact the Houthoff Transfer Pricing team.


  • Sylvia Dikmans, Tax Lawyer | Partner
  • Rezan Ökten, Transfer Pricing | Counsel
  • Gijs van Koeveringe, Tax Lawyer | Associate

Compliments of Houthoff – a member of the EACCNY.