The May 2025 memorandum of the Dutch Coordination Group on Transfer Pricing (CGVP) summarised in part one follows a five-step decisional architecture. A guarantee fee is permissible only if all are satisfied.
Step 1: Guarantee or umbrella credit?
The CGVP disqualifies a guarantee fee where the underlying arrangement is an umbrella credit (paraplukrediet) rather than a true guarantee, following the 2013 Paraplu-kredietarrest Hoge Raad ruling.
Three cumulative criteria identify an umbrella credit:
Multiple group companies participate in the same credit facility;
All participating companies are jointly and severally liable for the entire facility; and
No recourse claim can be exercised among the participants until the relevant borrower has fully repaid the underlying drawing.
Where these conditions co-exist, the CGVP treats the cross-liability as flowing from group ownership rather than an arm’s-length commercial bargain. No guarantee fee is payable, because the arrangement would not have arisen between unrelated parties.
Step 2: Recharacterisation
The next test is debt capacity. The CGVP confirms the position in Section 9 of the 2022 Transfer Pricing Decree: where a guarantee enables the borrower to obtain credit more than its standalone debt capacity, the relevant portion of the third-party loan is recharacterised and treated as:
A loan from the third-party lender to the guarantor (typically the parent); and
A subsequent capital contribution from the guarantor to the borrower.
This is a narrowing of the arm’s-length principle and remains, by the CGVP’s admission, in tension with Dutch jurisprudence on non-businesslike loans (see the Hoge Raad’s 2011 judgment No. 08/05323). Advance pricing agreement-led certainty is therefore increasingly attractive in this area.
Step 3: Financial capacity
Determining whether the borrower could have obtained the financing on a standalone basis turns on a debt capacity analysis. The CGVP references:
The borrower’s interest coverage ratio;
The debt-to-equity ratio of the borrower vis-à-vis the wider group;
Comparison with industry benchmarks for similarly profiled standalone issuers; and
The ratio at which the group company could independently access the relevant debt market.
The CGVP states that borrowers with a derived credit score below BBB- (i.e., already in the BB band) would not be able to attract loans on ‘acceptable’ terms. This is empirically debatable – financial databases routinely evidence sizeable issuance by BB-rated unrelated borrowers (the global high-yield market). Practitioners should expect this position to be tested in audit and in litigation.
Step 4: When no guarantee fee is payable
Even where steps 1–3 do not extinguish the guarantee, the CGVP identifies three scenarios where no fee can be charged.
Scenario | Why no fee is due |
No legally enforceable obligation | A comfort letter, expression of intent, or non-binding parental statement is not a guarantee. There is no transfer of risk and no economic substance to compensate. |
Lender-imposed anti-stripping covenant | Where the lender requires a parent guarantee solely to prevent the parent from ‘emptying’ the subsidiary (cash sweeps, dividend leakage, asset stripping), the CGVP regards the guarantee as protecting the lender against shareholder behaviour, not as a substantive credit enhancement. |
No incremental benefit beyond implicit support | If the borrower’s derived credit rating already factors in passive group affiliation – i.e., implicit support pursuant to paragraphs 10.156–10.157 of the 2022 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the OECD TPG) – the explicit guarantee adds nothing. This is squarely the rationale of the Court of Appeal of Amsterdam’s 2025 Tobacco BV ruling. |
Step 5: Pricing methodology
Where a guarantee fee is payable, the CGVP limits its value to the differential between:
The interest rate the borrower would have paid based on the group’s consolidated credit rating; and
The rate based on the borrower’s derived (i.e., implicit-support-adjusted) standalone credit rating.
This is the classic yield approach of paragraph 10.171 of the OECD TPG.
The Dutch practical rule of thumb
Where no specific guarantee fee can be reliably determined, paragraph 9 of the 2022 Transfer Pricing Decree authorises the inspector to accept half of the borrower’s interest rate benefit as the arm’s-length fee. This 50/50 split survives in the May 2025 memorandum.
The CGVP’s controversial corollary on guarantor credit quality
The memorandum implies that a guarantor with a credit score lower than the borrower’s cannot add value, and therefore the guarantee adds zero economic worth. The author respectfully disagrees on economic grounds. A guarantor of any solvency increases the asset pool available for repayment – a lender’s recovery model is improved even where the guarantor’s standalone rating is weaker than the borrower’s, because default correlation is rarely 1.0. This point is expected to surface in mutual agreement procedures and litigation.
Derived credit rating
The memorandum codifies the OECD-style implicit-support analysis, with rating uplift determined by:
The likelihood that the parent/group would walk away from the subsidiary in distress (‘strategic abandonment’);
The subsidiary’s importance to the group’s wider reputation, brand, regulatory standing, or operational continuity; and
The expected costs to the group in the event of subsidiary default.
This aligns the Dutch position closely with paragraphs 10.158–10.165 of the OECD TPG and the US Internal Revenue Service’s Generic Legal Advice Memorandum AM 2023-008 on implicit support, but with sharper documentation expectations.
New elements
The Article 403 declaration
The 403-verklaring – a written declaration by a Dutch parent under Article 403 of Book 2 of the Civil Code – relieves a Dutch subsidiary of the obligation to publish standalone financial statements, in exchange for the parent’s joint and several liability for the subsidiary’s debts.
The CGVP for the first time addresses – albeit cautiously – the transfer pricing implications of a 403 declaration. The May 2025 memorandum signals reservations about charging a guarantee fee in this context because:
The declaration is filed by the parent for its own administrative and consolidation benefit (avoiding subsidiary-level publication);
Liability arises by operation of corporate law and not as a negotiated commercial guarantee; and
The third-party creditors of the subsidiary may not always rely on or price the declaration, particularly where the subsidiary trades only with affiliates.
The implication is that existing intra-group fees levied solely because of a 403 declaration – without a separate, identifiable third-party borrowing – should be revisited. Where the declaration does demonstrably enhance third-party borrowing terms, however, an arm’s-length compensation analysis remains relevant.
Cash-pool guarantees
The memorandum also flags reservations regarding standalone guarantee fees in notional and physical cash-pool structures. The CGVP’s position aligns with paragraphs 10.146–10.148 of the OECD TPG: cross-guarantees within a cash pool typically operate as a matter of routine pool participation rather than as discrete arm’s-length credit support, and any benefit is more appropriately addressed through the pool’s overall remuneration framework.
Performance guarantees
Performance guarantees – where the parent backs a subsidiary’s contractual obligations to a third-party customer for the supply of goods or services – are introduced as an emerging area needing case-by-case treatment. The memorandum does not provide a methodology but signals:
Pricing must reflect the true probability of a call on the guarantee under the contract;
Where the parent provides no operational support and the subsidiary has full functional capacity, the fee may be modest; and
Where the parent performs functions critical to contract performance, characterisation may shift to a service/subcontracting arrangement (with cost-plus or the transactional net margin method).
This article reflects the views of the author and the SBC International Tax Practice based on materials available in the public domain as of the date of publication. It is intended as professional commentary and does not constitute legal or tax advice. The application of transfer pricing principles to any specific arrangement requires a fact-specific analysis. SBC accepts no liability for action taken in reliance on this article without independent professional advice.
