Netherlands: EC state-aid investigations | KPMG | GLOBAL

Netherlands: EC state-aid investigations, whether tax rulings provide “unfair advantage”

Netherlands: EC state-aid investigations

The European Commission today announced it has opened an in-depth investigation concerning two Dutch tax rulings and whether they may have allowed a company to pay less tax and provided an “unfair advantage” over other companies, in breach of EU state aid rules.

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As noted in the EC release, the company—a retail establishment—changed its business model in the 1980s to a franchising model. Since then, the taxpayer’s shops around the world pay a franchise fee of 3% of their turnover to a subsidiary of a group entity in the Netherlands. In return, the shops are entitled to use a trademark, and receive know-how to operate and exploit the franchise concept. The entity in the Netherlands records all revenue from the franchise fees, worldwide, collected from the shops. 

The EC's investigation concerns the tax treatment of the group entity in the Netherlands since 2006, and preliminary inquiries indicate that two tax rulings, granted by the Dutch tax authorities in 2006 and 2011, have significantly reduced the group entity’s taxable profits in the Netherlands. The EC has concerns that the two tax rulings may have provided an unfair advantage, when compared to other companies subject to the same national taxation rules in the Netherlands. This would breach EU state aid rules.

  • One ruling endorsed a method to calculate an annual license fee to be paid by the entity in the Netherlands to another company based in Luxembourg
  • A second ruling endorsed the price paid by the entity in the Netherlands for the acquisition of intellectual property and also endorsed interest to be paid on an intercompany loan to the parent company in Liechtenstein and the deduction of such interest payments from the entity's taxable profits in the Netherlands

 

Read a December 2017 report prepared by the KPMG member firm in the Netherlands

Read a December 2017 report prepared by KPMG’s EU Tax Centre

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