TP guarantee fees under the microscope – part three

On September 11 2025, the Court of Appeal of Amsterdam handed down its decision in Tobacco BV, covering FY 2008–16. The case is widely regarded in the Dutch transfer pricing (TP) community as the most important guarantee-fee judgment of the decade, and it directly aligns with the May 2025 memorandum of the Dutch Coordination Group on Transfer Pricing (Coördinatiegroep Verrekenprijzen, or CGVP) on implicit support.

Key points:

• The Dutch taxpayer paid a guarantee fee to its UK parent, calculated as the rate differential with and without the group rating;

• The tax inspector denied a deduction, arguing implicit support already enhanced creditworthiness;

• The court upheld the inspector’s view and denied the full guarantee-fee deduction across all years under review; and

• The Dutch taxpayer’s integral role in the international group meant external creditors would reasonably expect group support – the explicit guarantee added nothing beyond implicit support.

The wider implications are as follows:

• A €125 million penalty linked to the licence-termination exit (separate from the guarantee point) was annulled – the court found insufficient evidence of intentional misconduct;

• Burden of proof was shifted to the taxpayer for the licence-termination exit, on the basis that the company knew or should have known its filing position was not defensible; and

• The case is reportedly under appeal to the Supreme Court (Hoge Raad), and practitioners should monitor closely.

The following table presents a comparison between the Netherlands, India, and the UAE regarding the key issues.

Issue	Netherlands	India	UAE
Implicit support	Mandatory adjustment to derived rating; guarantee fee limited to incremental benefit (OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the OECD TPG), paragraphs 10.156–10.157).	Recognised post-2020 in Commissioner of Income Tax (Appeals)/Income Tax Appellate Tribunal (ITAT) rulings, but limited statutory codification. Case law (e.g., Bharti Airtel, Glenmark Pharmaceuticals) supports the principle.	Article 34 of Federal Decree-Law 47/2022 endorses the OECD TPG; the Federal Tax Authority’s Transfer Pricing Guide (2023) recognises the concept of implicit support.
Recharacterisation as a deemed loan plus capital contribution	Express in the 2025 memorandum; tension with Dutch onzakelijke lening (non-business-like loan) case law acknowledged.	No direct statutory analogue; thin capitalisation under Section 177 of the Income-tax Act, 2025 caps interest deduction at 30% of EBITDA for associated enterprise/permanent establishment financing.	Article 28 (general anti-avoidance) and Article 34 (arm’s length) could theoretically support recharacterisation; no published practice yet.
Pricing – 50/50 rule of thumb	Accepted as fallback under Section 9 of the 2022 Transfer Pricing Decree.	Not codified; the ITAT has approved a wide range (0.20%–1.50%) depending on facts.	Not codified; expected to follow OECD yield approach.
Sub-investment grade (BB) borrowers	CGVP position: cannot raise on acceptable terms below BBB-. Practitioners disagree with the empirical premise.	Case-by-case; the National Company Law Appellate Tribunal and the ITAT have accepted high-yield comparables.	The Federal Tax Authority has not articulated a threshold; OECD TPG yield approach applies.
Statutory parental liability (Article 403/equivalent)	Reservations on charging fee; case-by-case.	Under Section 129 of the Companies Act, consolidation does not create individual liability – typically no fee.	No equivalent under UAE company law; LLC member liability is limited.

For Dutch holding/financing companies (BV, NV, coop):

• Re-document every outstanding guarantee – separate the explicit guarantee from baseline implicit support.

• Build a defensible standalone credit score model for each operating subsidiary; do not rely on the group rating as the default.

• Where 403 declarations are in place, audit whether any intra-group guarantee fees are still being charged for the same risk – if so, the position is significantly weaker.

• Review existing advance pricing agreements (APAs) where guarantee fees are a covered transaction. Consider voluntary refresh or scoping discussions with the Dutch tax authority’s International Tax Certainty Team.

For Indian multinationals with Dutch holding structures:

• Indian outbound structures historically priced corporate guarantees aggressively; the new Dutch guidance, combined with the Indian safe harbour rules (Rule 10TD, post-amendment) and the recent Bharti Airtel line of the ITAT’s Special Bench, calls for fresh benchmarking and rating analyses;

• Where guarantees secure European Central Bank facilities under the Foreign Exchange Management Act, 1999 (FEMA) framework, pair the TP analysis with FEMA Master Direction 5/2018-19 (external commercial borrowings) compliance; and

• Document the strategic and reputational rationale for any group support – this is the lever that drives the derived rating uplift.

For UAE/Gulf Cooperation Council (GCC) outbound structures:

• UAE corporate tax under Federal Decree-Law 47/2022 (articles 34 and 36) requires arm’s-length pricing on guarantees with connected persons and related parties; Section 6.7 of the Federal Tax Authority Transfer Pricing Guide is consistent with the OECD yield approach;

• Where a GCC group uses a Dutch financing vehicle to access European debt markets, the CGVP position now becomes a primary audit reference – align the UAE local file and Dutch TP documentation; and

• Note that UAE free zone persons (qualifying free zone persons) cannot use guarantee structures to circumvent the substance, de minimis, or excluded activity tests.

The following is a ten-point action plan.

No.	Action item
1	Map every intra-group guarantee – explicit, implicit, lender-required, performance, 403, cash pool. Build a single global register.
2	For each guarantee, run the umbrella credit screen (three cumulative criteria) – disqualify upfront where applicable.
3	Establish standalone and derived (implicit-support adjusted) credit ratings using accepted methodologies (Moody’s RiskCalc, S&P Capital IQ, Bloomberg DRSK).
4	Apply the yield approach: compute the rate differential and apply (where appropriate) the 50/50 split. Document the comparability search.
5	Stress-test the recharacterisation risk – where standalone debt capacity is exceeded, model the tax cost of the deemed loan plus capital contribution outcome.
6	Audit existing 403 declarations: identify any guarantee fee being charged for the same risk and reassess the pricing.
7	Update master file Section 5 (financial activities) and local file Section 4 (controlled transactions) with refreshed guarantee-fee economics for FY 2025 onwards.
8	Where exposure is material and bilateral, evaluate filing a (bilateral or unilateral) APA in advance – the Dutch tax authority’s International Tax Certainty Team is increasingly receptive.
9	For Indian and UAE arms of the group, align local file narratives so that the same guarantee is not characterised inconsistently across jurisdictions – a frequent mutual agreement procedure trigger.
10	Track the appeal of Tobacco BV to the Hoge Raad and the CGVP’s December 2025 risk analysis toolkit – these will determine the audit posture for FY 2026 and onward.

The CGVP’s May 2025 memorandum is evolutionary, not revolutionary. It does not change the law. What it does is make explicit the analytical playbook the Dutch tax authorities will apply in audits and APAs. For multinational groups – particularly Indian and Gulf-based groups using Dutch holding and financing platforms – the era of a ‘one-size-fits-all’ guarantee fee is over.

Three priorities for boards and CFOs are as follows:

• Diagnose – a global guarantee inventory and re-rating exercise is now hygiene, not strategy;

• Defend – every fee must be supported by a documented step-by-step CGVP-aligned analysis (umbrella test, capacity, implicit support, and yield); and

• Decide – where exposure is material, an APA is no longer optional; it is the most efficient path to certainty in a tightening enforcement environment.

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.