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    The bank as transfer pricing specialist? 

    Following the Act on Financial supervision, banks should undertake sufficient measures to secure their business integrity, including their tax integrity. The Dutch Central Bank applies a broad interpretation of tax integrity. The Dutch Central Bank encourages Dutch banks to not only implement an ethical tax strategy for their own taxation, but also to implement a risk appetite policy towards tax structures applied by their clients.

    In 2019, the Dutch Central Bank published a guideline for banks titled “Good practices tax integrity risks with clients of banks”. These good practices include an analysis of clients’ intercompany transactions, with a substantiation of the transfer prices applied.

    How can a bank deal with this?

    First, a bank should make sure that it has a clear policy regarding the tax and TP structures applied by its clients. In other words, which tax and TP structures can be accepted? And when do those structures pose risks that become unacceptable?

    In this respect, it should be emphasized that the Dutch Central Bank is not only challenging cases of tax evasion (illegal structures), but also tax planning structures that are – although legal – considered as aggressive.

    The guidelines provide good practices on how to analyze the tax integrity risks at bank clients.
    This analysis may be part of a bank’s client acceptance procedure, client review procedure or following from a systematic integrity risk analysis.

    Which transactions require specific attention?

    From a tax and transfer pricing perspective, banks should pay specific attention to the following intercompany transactions in which their clients are involved:

    • Intercompany transactions involving intangible assets; and
    • In general, intercompany transactions and financing.


    Transactions involving intangible assets

    The guideline states that transactions involving intangible assets increase the tax integrity risks for banks. For instance, because corresponding royalty payments might be tax driven. It is therefore considered good practice that banks request:

    • insight in the economic rationale behind the transactions; and
    • a substantiation of the arm’s length nature of the transaction.


    Intercompany transactions and external financing

    It is considered good practice that banks request their clients to provide transfer pricing documentation that answers the following:

    • How do the intercompany transactions fit within the group structure?
    • Are arm’s length remunerations and terms applied?
    • Are the intercompany transactions tax driven?


    Additionally, banks may pay more attention to clients receiving external financing. Clients need to indicate how the external financing fits within their business profile and whether the external financing is tax driven (e.g. interest deductibility on debt). Also, back-to-back loans and guarantees provided by third parties will be scrutinized.  Concerning this, it might be helpful to pay attention to certain hallmarks regarding Transfer Pricing-risks, which are mentioned in DAC6, the EU Mandatory Disclosure Directive.

    Our thoughts:

    Although it is questionable whether banks are the appropriate body to determine whether a tax structure is acceptable or not, it is expected that banks will reject clients if they constitute a (potential) tax integrity risk. When setting-up a tax structure, companies should be aware and be able to document the structure and the arm’s length nature of the intercompany prices applied.

    This prevents the situation that a tax structure is legally accepted, but actually cannot be implemented because, for example, bank accounts cannot be opened.

    If you have any further questions or remarks, please do not hesitate to contact the undersigned.

    Stefan Ubachs







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