The at arm's length principle in Dutch tax law

In 2002, a provision was implemented in Dutch tax legislation to facilitate the tax authorities to check transfer prices, reading as follows:  

“Where an entity participates, directly or indirectly, in the management, control or capital of another entity and conditions are made or imposed between these entities in their commercial and financial relations (transfer prices) which differ from conditions which would be made between independent parties, the profit of these entities will be determined as if the last mentioned conditions were made.“

The purpose of this provision is to avoid that non arm’s length profit transfers between affiliated companies would affect the calculation of the taxable profit.  Now the arm's length principle forms an integral part of Dutch tax legislation.

It is emphasized that the "at arm’s length principle" can only apply to transactions between affiliated parties in cross-border situations.  If contracting parties are not affiliated, the prices charged are automatically considered to be at arm’s length.  There may still be transfer pricing discussions, for instance relating to the allocation of the price to various assets in case of package deals, but the total price cannot be subject to discussion. 

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