Previously, in view of the Dutch State Secretary of Finance, the below cost-plus situation led to double economic taxation as the Netherlands disallowed the tax deductibility of the third-party expenses at the level of the Dutch BV. Reason being that the third-party expenses result in a double deduction outcome considering that these expenses are deducted both at the level of the NL BV as well as at the level of VS Inc. due to the tax transparent qualification of NL BV for US tax purposes. In such case, the deduction is limited at the level of NL BV insofar VS Inc. does not already deny the deduction for US tax purposes and there is insufficient double inclusion income. Previously, the Dutch State Secretary of Finance took the position in this regard that the transfer pricing adjustment in the form of a cost-plus remuneration did not qualify as ‘dual inclusion income’ for Dutch ATAD2 purposes. Now, the Dutch Ministry of Finance clarifies that – although the cost-plus remuneration is not included in the US tax base pursuant to the disregarded status of the Dutch BV – the cost-plus remuneration can be considered as dual inclusion income for Dutch ATAD2 purposes. As a result, the third-party expenses of BV (that qualify as a double deduction) can be offset in the Netherlands at the level of NL BV against this taxable income.
The above interpretation is applicable as from the moment that the Dutch ATAD2 rules entered into effect (i.e., for FY starting on or after January 1, 2020). Hence, the above can also positively affect Dutch tax returns that were already filed with the Dutch tax authorities.