![]() This interaction between HR tax and transfer pricing is illustrated by a court ruling of the Court of Zeeland-West-Brabant of 19 December 2019 in which a Dutch tax resident had a formal employment contract with a UK entity (a Limited company) but was effectively performing activities in the UK, the Netherlands (from a home office) and Germany (for a GmbH) for the benefit of the group entities located in each of these countries. Depending on the specific circumstances, for international mobile staff, a (partial) cross-charge of costs, could lead to a shift in the power to tax their remuneration. In addition, one might need to assess the potential personal income tax consequences for those employees that work on a regular basis outside their home country for other group companies. From a transfer pricing perspective, for these employees one should assess who the material employer is by identifying a relationship of authority such a relationship determines whether a service has been provided for which profit-related remuneration might be due or that only labour costs should be cross-charged to the company that is the material employer. In practice, we note that multinationals work more and more across borders and not all employees work and live full-time in the country where their employer is located. The cross-charge will affect the operating result - and consequently - the taxable basis of the in-scope entities that are subject to corporate income tax. The definition of the cost base and the allocation key(s) are also important factors that should be considered. ![]() The practical implementation of the cross-charge can be done through: a monthly fixed amount, standard hourly rates, a combined service fee, or the cross-charge of salary costs on an individual basis. ![]() The key transfer pricing principles to take into account are: (i) the physical place of work, (ii) who has oversight/authority over the employee(s) in question in which ‘substance over form’ prevails, (iii) is there any added-value created? (iv) whether or not a mark-up on costs is applied, and (v) what is the appropriate mark-up percentage. Transfer pricing ensures that the provision of services is remunerated on an arm’s length basis and service fees are allocated to the service recipients that benefit from the services. A key issue is the cross-charging of costs, and in particular labour costs between associated enterprises.
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