Your tax controversy strategy can save a lot of interest!
The Dutch government is planning an explicit option to mitigate interest on underpaid tax when a Mutual Agreement Procedure (MAP) is conducted. However, this option still seems to be absent for bilateral APAs.
What are BAPAs and MAPs?
Bilateral or multilateral APAs (hereinafter: BAPAs) and MAPs are agreements between states in which the profit of a company is allocated based on transfer pricing arrangements between two or more countries.
Impact of Interest on Profit Adjustments
When adjusting profits, interest on underpaid tax (hereinafter: interest) often come into play. Differences in the national interest regulations of the states involved can lead to a significant interest burden during the mutual agreement procedure and/or the period of concluding BAPAs. As of the time of writing, this interest in the Netherlands is 9% (!) on the tax due, which can add up quickly.
Possibility to Reduce Tax and Collection Interest
During a MAP, the taxpayer can request a reduction of the interest charged. The Dutch competent authority will, in principle, be willing to mitigate this interest based on the principles of reasonableness and fairness in cases where the Netherlands has charged interest in connection with the issue subject to the MAP. This is laid down in the Decree on Mutual Agreement Procedures. On Monday, August 18, 2025, a draft version of the Tax Collection Act 2027 was offered for consultation. One of the points is that there will be an explicit option to mitigate interest on underpaid tax when a MAP is conducted under the Tax Arbitration Act. The proposed measure will take effect on January 1, 2027. With the introduction of this legislation, the taxpayer will have more legal certainty.
Difference in Interest Reduction between MAPs and BAPAs
The aforementioned interest mitigation only applies to MAPs. In principle, this interest mitigation does not apply to advance certainty in the form of BAPAs. Both BAPAs and MAPs aim to prevent double taxation. The difference lies in the timing; one is in principle in advance, and the other is retrospective. If BAPAs are initiated as advance certainty, there is, in principle, no need for mitigation of interest on underpaid tax. The downside is that with a long processing time, the BAPA also entails retrospective certainty, and the current interest rules do not align with existing practice. In this case, it is important to coordinate well with your Tax Controversy advisor to determine the best strategy.
Strategic Approach to BAPAs and MAPs with High Interest Charges
For example, a taxpayer may reject the outcome of a BAPA retrospectively if there is an (excessive) interest burden. If a tax reassessment in the Netherlands follows (and thus leads to double taxation), the taxpayer can still request the prevention of double taxation for the past through a MAP. In a MAP, one can request interest mitigation. With an interest rate of 9%, this can be worthwhile. This can be significantly more advantageous than concluding a BAPA. Furthermore, there are also countries known for always having long processing times for concluding BAPAs. Here too, it is important to clearly discuss the strategy in advance with an experienced Tax Controversy expert to avoid unnecessary interest in addition to the long wait.
Advice on Tax Controversy and Tax Dispute Management
Curious about what Meijburg can do for your organization in the field of tax controversy and tax dispute management? Contact Janneke Versantvoort or Eduard Sporken for an introductory consultation.
