Background new TP Decree and PE Decree

The TP Decree has been modified textually and in terms of content, in order to be more closely aligned with the terminology of the 2022 OECD Guidelines and Dutch laws and regulations.

Developments in the area of profit allocation to permanent establishments, including the results of the OECD's BEPS project, led to an update of the PE Decree, which dated from 2011. The update of the PE Decree incorporates the 2012 implementation of the object exemption in the Corporation Income Tax Act 1969. It further addresses the Dutch authorities' premise that double non-taxation as a result of different interpretations of the arm's-length principle is not appropriate and should be prevented where possible.

The TP Decree


Based on (comments in) various sections in the TP Decree, it is apparent that the Dutch Tax Authorities may deviate from the positions set out in the TP Decree in situations where double non-taxation arises within a multinational group. 

Financial transactions

The updated section on financial transactions in the TP Decree has been aligned with the content of the (new) Chapter X of the 2022 OECD Guidelines. This section emphasizes, among other things, that first it should be determined whether a prima facie loan should be considered as a loan for transfer pricing purposes. If a portion of the loan does not qualify as a loan, the State Secretary believes that an arm's-length interest charge should be determined for the remainder of the loan.

The TP Decree further addresses service companies (SCs). The State Secretary states that debt that can solely be attracted by means of a guarantee from an associated entity, should be considered as a capital contribution to the SC. There is a tension between the aforementioned views of the State Secretary and the case law of the Dutch Supreme Court, pursuant to which, the civil-law form of a monetary provision is decisive for the tax classification (unless it is deemed to be a sham loan, loan functioning as equity or a bottomless pit loan). This area of tension is acknowledged in the TP Decree by the State Secretary. In case of requests for certainty in advance (e.g. an advance pricing agreement), the State Secretary takes the position to follow the OECD Guidelines (rather than the Dutch Supreme Court case law) as the underlying principle.

Government support measures

The TP Decree recognizes that certain events (such as a credit crisis or pandemic) may be grounds for adjusting the terms of a transaction. According to the State Secretary, parties to such an adjustment may consider a possible grant due to a support measure (such as COVID-19 allowances) when determining the terms of a controlled transaction. 

The PE Decree

The PE Decree underlines the State Secretary's preference for the "capital allocation approach" in combination with the "fungibility approach" with respect to the allocation of interest costs to a permanent establishment. Based on the PE Decree, the “capital allocation approach” assumes that the permanent establishment has a credit rating equal to that of the legal entity as a whole. Under the “fungibility approach”, the interest expense of the entity is allocated to the permanent establishment in proportion to the allocated debt (following the application of the capital allocation approach).

Key takeaways

Taxpayers should take the views of the State Secretary expressed in the TP Decree and PE Decree into account, since these may come up in discussions with the Dutch Tax Authorities. Whether these views will be followed by the Dutch Courts is uncertain at this point. We recommend that existing cases, and more specifically intra-group financing transactions, should be carefully reviewed in light of the changes in the decrees.  

Effective Date

Both decrees have taken effect as of July 2, 2022.