The Summer 2019 Issue of the Transfer Pricing Forum issue contains country insights on “Taxation and digitalization of the economy” and forms an interesting update on the progress so far from 23 geographically spread out nations. The TP forum was showcased at the IFA London Congress in September 2019. The Country report from the Netherlands focuses on practical questions posed by guidance and case law, including some practical recommendations.

1. Reproduced with permission from Transfer Pricing Forum,
10 TPTPFU 52, 8/30/19. Copyright ஽ 2019 by The Bureau
of National Affairs, Inc. (800-372-1033) http://www.bna.com
AUGUST 2019
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2. The Netherlands
Danny Oosterhoff, Bo Wingerter, and Navita Parwanda
Ernst & Young Belastingadviseurs LLP, Amsterdam
1. Please describe your jurisdiction’s
(i) preliminary discussions or
consultations; (ii) proposed
measures; and/or (iii) enacted
legislation associated with the
taxation of digital activities. The
discussion should include income
tax and/or value added tax
measures. Is there an estimation of
the tax revenues that would be
collected as a result of the
enactment of these measures?
Historically, the Netherlands has expressed reserva-
tions over the European Commission’s (‘‘the Commis-
sion’’) Proposal for a Council Directive laying down
rules relating to the corporate taxation of a significant
digital presence (‘‘the Directive’’). The Netherlands in
October 2018, vide a letter to the Parliament1
from the
Secretary of State for Finance, placed technical obser-
vations on the ‘‘interim’’ nature of such digital taxa-
tion under the Directive and its subjectivity to cause
increased or even unresolvable double taxation. Addi-
tionally, as explained in the letter, the Netherlands
prefers that the taxation of the digital economy be ad-
dressed on a global scale. The Netherlands reiterated
its constructive approach to this issue during the Eu-
rogroup and the Ecofin Council meeting in Brussels
on May 16 and 17. At that meeting, the Netherlands
reaffirmed the importance of continuing to partici-
pate in the OECD’s discussions on the digital
economy.
The Netherlands currently has not implemented
any formal legislation with regards to the proposition
in the draft Directive, nor any other form of unilateral
measures related to the taxation of digital activities.
The Netherlands has not made any budgetary evalu-
ations on the projected increase or decrease in tax col-
lections due to implementing the proposed
legislation.
2. What challenges has your
jurisdiction faced in the (i)
development; (ii) implementation;
and/or (iii) tax audit of measures
related to the taxation of the
digitalized economy? What has
been the reaction of multinational
enterprises (MNEs) to any of these
unilateral measures?
The Netherlands published its evaluation and raised
its concerns on the draft EU proposal2
, in particular in
light of its limited focus. The Netherlands believes this
issue must be evaluated together with the OECD’s
work under the Base Erosion and Profit Shifting
(BEPS) Inclusive Framework.
The Netherlands has been forthcoming in resolving
tax disputes or double taxation arising out of unilat-
eral measures by other nations.
2 08/19 Copyright ஽ 2019 by The Bureau of National Affairs, Inc. TP FORUM ISSN 2043-0760

3. In our experience, we have seen a number of Mutual Agree-
ment Procedures (‘‘MAP’’)/Bilateral Advance Pricing Agree-
ments (‘‘BAPA’’) requested by MNEs in the Netherlands where
there is (or anticipated) double taxation arising from unilateral
implementations of taxation on digitalized business models.
However, these requests are at the preliminary stages. Addition-
ally, the nature of these ‘‘digital tax’’ initiatives and whether or
not they constitute direct or indirect taxes is still in dispute. As
such, the expected outcome of these MAP and BAPA requests is
still unknown, as the treaty counterparties may still view the
implementation of the digital tax in their country as outside the
scope of the tax treaty.
3. (a) In light of the proposed guidance
outlined in the OECD’s Public
Consultation Document, Addressing the
Tax Challenges of the Digitalisation of the
Economy, what do you perceive are the
key advantages of the i) profit split
approach or the ii) fractional
apportionment approach in tackling the
challenges of the digitalization of the
economy? (b) What are the challenges
that you see, in practice, when applying
these approaches considering the existing
transfer pricing framework (e.g.,
feasibility of splitting profits between
routine and non-routine, and then
isolating those profits derived from a
subset of marketing intangibles;
reliability of the use of ‘‘place of sales,’’
‘‘number of employees,’’ or other factors
to spread the profit among jurisdictions;
necessary information that should be
available to taxpayers and tax
administrations)?
(i) The (modified) residual profit split approach suggested by
the OECD’s Public consultation document of February 2019
(reiterated in the ‘‘Programme of Work to Develop a Consensus
Solution to the Tax Challenges Arising from the Digitalisation
of the Economy’’ dated May 31, 2019) has the advantage that it
is intended to coexist with the existing transfer pricing rules.
However, it is expected that disputes may arise due to the use of
the existing framework and the introduction of new taxing
right allocation mechanism(s). Because of this complexity, the
modified residual profit split approach may be too difficult to
implement within the short timeframe targeted by the OECD.
(ii) The fractional apportionment method could result in some
level of opposition from countries which rely on a service
economy and the exploitation of intangible property. Further,
there will be significant work required in terms of developing
this new framework.
The OECD, with its 3-tier documentation approach in place,
is striving to make information more transparent by making
more useful taxpayer information available to tax administra-
tions. However, the biggest challenge for the new framework
will be the definitions of these various new terms in the OECDs
proposed framework. A key breakthrough for the proposed
framework will be to test how watertight these definitions can
be. The existing transfer pricing framework has been consis-
tently refined (based on consensus) to include contemporary
business realities. There may need to be significant (re)work re-
quired in implementing these new approaches, and we expect
that significant progress should be made as the OECD works
through its most recent workplan.
4. As the OECD works to develop a
harmonized global approach to the
taxation of the digitalized economy
(anticipated in 2020), what are
multinational enterprises (MNEs) in your
jurisdiction doing to adapt their
operations and business models, in light
of the uncertainty during this period? Is it
feasible for MNEs to isolate ‘‘digital’’
activity or to segment financial
information by activity, product line, or
region? Is this already done for purposes
other than tax? If not, what would be
the main obstacles to producing such
information?
In light of the current guidance in the OECD’s workplan, com-
panies are beginning to perform assessments and scenario
analyses to establish the potential impact of a new, harmonized
approach to taxing their digital business models. However, due
to the infancy of the new OECD workplan, most companies are
not yet adapting their models solely in relation to this topic, al-
though tax reform in general has triggered gradual changes for
many companies. Additionally, MNEs are focusing on more
practical responses where feasible, such as refining their docu-
mentation to create a robust assessment of the value chain in
light of (potential) digital economy participation by the busi-
ness. However, it remains difficult to ring-fence digital activity
overall, and without more concrete guidance from the OECD,
most MNEs are hesitant to implement material changes into
their models.
Danny Oosterhoff is a Partner, Bo Wingerter is a Senior Manager, and
Navita Parwanda is a Senior Consultant at Ernst & Young
Belastingadviseurs LLP, Amsterdam, Netherlands.
They may be contacted at:
danny.oosterhoff@nl.ey.com
bo.wingerter@nl.ey.com
navita.parwanda@nl.ey.com
www.ey.com/nl/en/home
NOTES
1
Brief Snel stand van zaken richtlijnvoorstellen belastingheffing digi-
tale economie 18 okt 2018.en.
2
Ibid.
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