Despite speculation, transfer pricing rules will remain unchanged by the replacement of the patent box with an innovation box in September’s budget.

Practitioners had wondered if the anticipated rise in R&D activity would have some bearing on documentation requirements.

The new innovation box will be effective from January 1 2010 and will offer taxpayers involved in R&D activity an effective tax rate of 5%. This is a reduction from the 10% rate that was the feature of the patent box when introduced in 2007.

“There have been no changes in the transfer pricing requirements, although there is a greater need to have requirements to accommodate intangibles,” said Michel Bilars, a partner at Luminous Tax Matters.

To take advantage of the innovation box, taxpayers will have to prepare transfer pricing documentation, just like they have to do under the patent box regime. It will be necessary for taxpayers to illustrate the overall relevance of R&D activities in the Netherlands compared to other company operations. This is why documentation is essential.

“From a transfer pricing perspective, the tax authorities need to identify to the role of the technology,” said Monica Erasmus, a senior manager at Ernst & Young.