Transfer pricing lessons from Dutch Court loan ruling

On 5 August 2026, the Court of Appeal of The Hague (Gerechtshof Den Haag) delivered a landmark ruling on the arm’s-length pricing of five intragroup credit facilities maintained by a Dutch subsidiary of a multinational enterprise (“MNE”) group. The case, spanning financial years 2012/2013 through 2016/2017, involved interest deductions in excess of EUR 1.2 billion on intercompany facilities that combined drawn-amount interest with commitment fees on undrawn headroom. The decision is subject to appeal in cassation to the Dutch Supreme Court (Hoge Raad).

The Dutch tax inspector (Inspecteur) had reduced the deductible amount for Dutch Corporate Income Tax purposes. The Court of Appeal rejected several of the technical arguments underpinning the tax authority's position, whilst still concluding that the taxpayer’s initial position required adjustments. Based on the Court’s analysis, the arm’s-length interest deduction was capped at EUR 903 million. In what may appear at first glance to be a highly technical and nuanced case, there are some key takeaways relevant for taxpayers and practitioners dealing with related-party financial transactions - as well as other intercompany transactions more broadly.

• No hindsight in transfer pricing analyses: In analysing the arm's-length rate (an all-in markup over a variable rate), the Court made clear that the use of hindsight - and, more generally, information and data not available at the time of entering the transaction - is not permitted. This is a welcome reminder of a concept already embedded in the relevant OECD guidance but highlights how difficult it may be for taxpayers and tax authorities to adhere to this principle in practice when analysing transactions years after their execution.

• Comparables - quality over quantity: The case suggests that a limited number of comparables (adjusted, where needed through supportable and documented steps) is to be preferred to broad, heavily adjusted data sets. In practice, this means that the availability of comparables, or the lack thereof, should be properly assessed following a rigorous process when performing a transfer pricing analysis and such process should be clearly documented. The same applies to comparability adjustments and the reasons behind them. 

• Every point in the arm's-length range is acceptable: In the case at hand, the Court used the most favourable comparable for the taxpayer (top of range), rejecting median or interquartile adjustments. This reinforces the view that, when strong comparables are identified, they are all equally reliable for identifying the arm’s-length price of a transaction - and any point in the identified range of results should therefore be equally acceptable. This reinforces the relevance of sufficiently substantiating based on the case-specific fact pattern why a certain point in the interquartile range could be considered most appropriate when it comes to policy-setting and potential adjustment discussions.

• Contemporaneous analysis matters: In the case at hand, deficiencies in contemporaneous transfer pricing documentation led to reversal of the burden of proof, significantly weakening the taxpayer’s procedural position. Together with the considerations on hindsight above, this is a clear reminder that contemporaneous TP analysis, supporting data and evidence trails that the documentation has been timely included in the company’s administration can make a meaningful difference in supporting the strength of your position.

• Credit rating assessments remain an area of attention: The Court accepted in principle the overarching approach to credit rating assessments of both the taxpayer and the inspector (standalone borrower rating, with adjustments for implicit or explicit support). However, the intrinsic value of any such credit support and the corresponding adjustments to the borrower's standalone rating remains an area characterised by high subjectivity and uncertainty.

The taxpayer, a Dutch subsidiary of a large MNE group, entered into five intragroup credit facilities (referred to as Facilities 1, 3, 3a, 5, and 7bn) under which it borrowed from related parties. Interest was charged as a fixed margin over EURIBOR on amounts actually drawn, while commitment fees were levied as a fixed percentage of the total facility amount - including the undrawn headroom.

Over the relevant financial years (2012/2013–2016/2017), the taxpayer deducted interest in excess of EUR 1.2 billion in aggregate interest and commitment fees. The Dutch tax inspector challenged these deductions as exceeding arm’s-length levels under Article 8b of the Dutch Corporate Income Tax Act (Wet op de vennootschapsbelasting 1969) and issued additional assessments reducing the total deduction for Dutch CIT purposes.

The District Court (Rechtbank Den Haag) issued its ruling on 14 July 2023, after which both parties appealed to the Court of Appeal. The Court of Appeal issued an interim ruling on 29 October 2025 (ECLI:NL:GHDHA:2025:3019) before delivering its final judgment on 5 August 2026. The decision is subject to appeal in cassation to the Dutch Supreme Court (Hoge Raad). 

Total-Cost Approach and Ex Ante Assessment

The Court largely endorsed a total-cost approach as put forward by the taxpayer, combining the interest charged on drawn amounts with commitment fees into a single effective markup over a variable base rate (EURIBOR), effectively moving away from separate testing of each pricing component of the financing arrangements. This all-in rate was assessed on an ex ante basis using EURIBOR forward rates available at the time of the transaction. The Court rejected the inspector’s ex post approach, holding that the use of hindsight and, more generally, information and data not available at the time of entering the transaction, is not permitted under the arm’s-length principle.

The court applied a two-step process for each facility:

• Step 1: Determine whether the ex ante total-cost markup exceeds the upper bound of the arm’s-length range derived from comparables. A correction is warranted only if the upper end of the range falls below the taxpayer’s ex ante markup. 

• Step 2: Calculate the adjustment by applying compound interest at the arm’s-length margin to the principal actually drawn, without including commitment fees in the corrected amount.

Creditworthiness Determination

The Court largely upheld the taxpayer’s own credit-rating analyses for the borrowing entity, accepting a BB+ rating for Facilities 1 and 5, and a BBB rating for Facilities 3, and 7bn (for 3a, a BBB rating was also assumed, although this was arrived by accepting the tax inspector views). The general methodology was not in dispute (that is, a standalone borrower rating should be determined first, with adjustments then made for implicit and explicit group support where appropriate).  

Importantly, the Court implicitly accepted the parties view that both implicit and explicit support “can have independent significance” and “can be taken into account alongside one another,” and confirmed that, in any case, implicit support is assumed to add value even where an explicit guarantee exists. The Court, however, disagreed with the overall weight placed by the Inspector on implicit support in adjusting the borrower’s standalone rating. Specifically, the initial position of the tax inspector, which relied on the credit rating of the ultimate parent company rather than the borrower’s own standalone rating, was rejected as it failed to account for the borrower standalone credit rating analyses which were indeed available.

Comparable Selection and Comparability Adjustments

The Court established detailed criteria for selecting comparable transactions, from which it can be inferred that a deductive approach to comparable selection should prioritise the quality of the accepted comparables over their quantity. This is also to limit the amount of comparability adjustments required and their overall reliability (reinforcing the principle that if a comparability difference cannot be reliably adjusted for, the whole comparable should be rejected). 

In addition to credit rating and key terms and conditions of the loans (which are generally accepted by practitioners and tax authorities as key comparability factors for loan pricing), the Court accepted the relevance of geographic location and industry as part of the analysis. It discarded other adjustments put forward by the inspector and the taxpayer on the basis that they were either unnecessary or not sufficiently substantiated. 

On balance, this case is a reminder that TP analyses should be based on rigorous and objective approaches for selecting / rejecting comparables, and the need for and extent of comparability adjustments should be carefully evaluated taking into account the characteristics of the transaction being analysed and the availability of reliable data to perform such adjustments. Objective evidence should be collected and maintained supporting the analytical process followed to perform the analysis and the data relied upon.  

Point in the Range

The Court held that in the presence of a small set of highly comparable transactions, the full range of interest rates supported by such comparables is relevant to establish the arm’s-length price of the loans and any point in the range is equally reliable. No interquartile range or averaging was deemed acceptable in this case, as these statistical indicators are meant to mitigate the impact of comparability defects rather than to arbitrarily identify a specific point in the range.

Transfer Pricing Documentation and Reversal of the Burden of Proof

The Court reversed the burden of proof to the taxpayer, noting substantial deficiencies in the transfer pricing documentation prepared by the taxpayer and the lack of contemporaneous parts of the analysis (e.g. credit rating analyses). This reversal significantly raised the evidentiary hurdle the taxpayer had to clear to challenge the inspector’s assessments. Combined with the other findings of this case, it reinforces the importance of performing contemporaneous TP analysis and maintaining appropriate transfer pricing documentation (and relevant evidence trails). This can go a long way in supporting not only the strength and robustness of the analysis performed, but also the clear timeline and chain of events which led to a certain pricing, based on information and reasonable expectations available at the time.  

A summary of key learnings and takeaways for taxpayers is included below. Importantly, whilst in the case at hand the Court ruled on involved intercompany loans, it draws a number of conclusions which are inherently applicable to non-financial transactions too. 

Perform contemporaneous transfer pricing analyses: this case makes it even clear from various angles that good transfer pricing governance involving real-time analysis and documentation of new intercompany transactions is key. Having contemporaneous TP documentation can materially mitigate the risk of challenges from tax authorities around the use of hindsight, provides safeguards against challenges revolving around outcomes which could have not been predicted at the time of the transaction and demonstrates reasonable care has been taken. Furthermore, a well-documented analysis supported by clear workpapers / evidence can significantly reduce the cost of managing questions from tax authority upon reviews or audits. 

Follow a rigorous approach for comparable selection and adjustments: Acceptance, rejection and adjustment of comparables are all equally important in establishing an arm’s-length range. Data availability has increased materially nowadays for both taxpayers and tax authorities, de facto raising the bar for taxpayers assessing availability of comparable transactions, and raising the risks associated with the rejection (or lack of consideration) of potential comparable transactions available in the market. Transfer pricing analyses should be grounded where possible in a clear framework for comparable selection, minimising subjectivity. Group transfer pricing policies should be reviewed periodically not only to test their alignment with changes in the business and intercompany funding needs but also to test whether the application of the CUP method continues to be robust and defensible.

The borrower standalone rating matters, and so do implicit and explicit support: Credit ratings are at the heart of intercompany debt pricing. This case is a reminder that lightly grounded assumptions made in this space can lead to material differences in supportable rates. Besides the assessment of the borrower’s financial position and qualitative profile, the assessment of implicit and explicit support has to be performed and can have material impacts on the analysis. As with comparable selection, developing an objective framework to assess credit ratings can be highly beneficial to taxpayers both in terms of robustness and defensibility of the analysis, consistency of results and efficiency gains.