The Dutch Ministry of Finance published an unofficial English translation of a Decree regarding the profit attribution to permanent establishments (in short the Decree profit attribution to permanent establishments 2022). The Dutch version of the Decree was already published on July 1, 2022 in the Dutch State Gazette.

Although the Dutch version of the Decree was already published on July 1, 2022 the English version of the Decree was only published on July 1, 2023.

Object of this Decree

The purpose of this Decree is to clarify how the Tax Administration assesses profit attribution to permanent establishments. This Decree therefore provides further insight into the Netherlands’ positions on profit attribution to permanent establishments. These positions only relate to the attribution of the income and expenses underlying the profit and not to the taxability and deductibility of the individual income and expense items.

The positions are also important for the application of article 15 of the Corporation Tax Act 1969 and the Dividend Tax Act 1965 with regard to the attribution of shares to a permanent establishment situated in the Netherlands.

This Decree does not concern the application of article 5 of the OECD Model Tax Convention regarding the consideration whether a permanent establishment exists, nor does it concern article 9 of the OECD Model Tax Convention regarding the consideration whether associated parties have operated at arm’s length.

In the Decree a.o. the following subjects are being discussed:

• Profit attribution to permanent establishments
  • General
  • Authorised OECD approach
    • Step 1: Attribution of assets and risks on the basis of the functional analysis
    • Step 2: Attribution of costs and revenues based on the arm’s length principle
    • Preferred Dutch method for attributing interest expenses
  • The use of different methods in the countries of the head office and the permanent establishment
• Risk attribution, significant people functions versus control
• Dealings
  • Intra-group services
  • Intangible fixed assets
  • Financial transactions
• Specific subjects
  • Tangible fixed assets
  • Financial assets
  • The agent as permanent representative
  • Certainty in advance

An annex containing an example regarding the implementation of the capital allocation approach and fungibility approach is attached to the Decree.

The English Translation of the Decree can be downloaded here from the website of the Dutch Ministry of Finance.

The (Official) Dutch version of the Decree can be found here.

The Dutch Ministry of Finance also published an unofficial English translation of the Transfer Pricing Decree 2022. More information on that matter can be found in our article from august 3, 2023.

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