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Belgium has included the definition of the arm’s length principle mentioned in article 9 of the OECD Model Tax Convention into Belgian tax law by Article 185 §2, of the Belgian Income Tax Code 1992 (BITC) since 2004.
Furthermore, the Belgian Income Tax Code contains other specific articles which (in)directly relate to transfer pricing:
Article 26: abnormal or benevolent advantages granted are added back to the tax base;
Article 49: basic conditions for the tax deductibility of expenses;
Article 54 - 56: deductibility of the payments of interest, royalties and management/services fees;
Articles 79 and 207: non deductibility of certain tax deductions (eg current and carried forward tax losses, etc.) from abnormal or benevolent advantages received; and
The TP rules apply to Belgian taxpayers, including Belgian branches of non-Belgian companies.
- Belgium has enacted specific transfer pricing documentation requirements into its tax law for financial years starting on or after 1 January 2016. These requirements are based on Action 13 of the OECD /G20 ‘BEPS’ Project and introduced a three-tier documentation approach consisting of a CbCR (Country-by-Country reporting), a Master File and a Local File.
- The Belgian tax administration issued on 25 February 2020 a Circular Letter 2020/C/35 based on the 2017 version of the OECD Guidelines. The circular confirms that the Belgian tax administration follows the main principles of the 2017 OECD Guidelines and the arm’s length principle.
- Furthermore, the circular includes the preferences or position of the Belgian tax administration, where useful and appropriate. For some matters, the Belgian tax administration deviates from the 2017 OECD Guidelines (eg on financial transactions).
- Regarding some transfer pricing aspects, the opinion of the tax authorities can also be found in rulings dealing with transfer pricing that have been published. A ruling is however only binding for the taxpayer that received the ruling.
- All methodologies included in the OECD Guidelines are accepted in Belgium. The most appropriate transfer pricing method for a specific situation needs to be applied.
- The most appropriate pricing method should be selected on a transaction by transaction basis, providing the most reliable measure of an arm’s length result in each case. The current OECD methods, namely the comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split method are all accepted by the Belgian tax authorities. Other methods can also be used if these are justifiable and appropriate.
- There is no hierarchy within the transfer pricing methods, although in practice, the comparable uncontrolled price method is still the preferred method of the Belgian tax authorities.
- No self-assessment-regime in relation to transfer prices.
- Belgium has implemented a three-tiered transfer pricing documentation requirement into Belgian Tax Law (articles 321/1 – 321/7 BITC). The regulations regarding transfer pricing documentation are applicable for financial years starting on or after 1 January 2016.
- Belgium introduced Country-by-Country Reporting (CbCR) regulations which are for groups with revenues over 750 million EUR.
- The Country-by-Country Report needs to be filed within 12 months after closing of the reporting period of the group by and in the state of the ultimate parent company. Furthermore, if the conditions to file CbC Reporting are fulfilled at group level and even in case the Belgian company is not the ultimate parent company of the group, a notification needs to be performed to the Belgian tax authorities to inform them which group entity will file the CbC Reporting.
- For financial years ending on 31 December 2019 or later, the CBC notification does not need to be submitted annually anymore, but only there are changes to the reported data.
Master File and Local File
- Companies that are part of a multinational group and that are exceeding one of the following thresholds (to be evaluated based on the stand-alone financial statements of the Belgian entity) are subject to file TP documentation:
- A total of 50 million EUR operational and financial income (excluding extraordinary income); or
- A balance sheet total of 1 billion EUR; or
- An annual average number of employees of 100 FTEs.
- This transfer pricing documentation obligation is applicable for all entities of a multinational group that exceed one of the thresholds mentioned and is not limited to parent companies of multinational groups.
- The Master File needs to be filed within 12 months after closing of the reporting period of the group.
- The Local File needs to be introduced at the moment of filing the corporate income tax return of the Belgian company.
- Documentation can be prepared in English. However, a translation into one of the official languages may be requested during a tax audit.
- Belgium has issued specific forms for the filing of the Master File (Form 275MF) and Local File (Form 275LF).
- The Master File (Form 275MF) should contain the following information: organizational structure, description of the MNE’s business(es), MNE’s intangibles, MNE’s intercompany financial activities and MNE’s financial and tax positions.
- The Local File (Form 275LF) is composed of two parts. The first part is a form containing information with respect to the local entity. The second part is a detailed information sheet with respect to the transfer pricing analysis of the transactions between the local entity and the foreign group entities. More specifically, information with respect to the financial data related to these transactions, the comparability analysis and the selection and application of the most appropriate transfer pricing method need to be included. The second part only needs to be filed when one of the business units within the Belgian entity has cross-border intercompany transactions exceeding the threshold of 1.000.000 EUR. The Local File needs to be introduced at the moment of the filing of the corporate income tax return of the Belgian company.
- Persistent losses
- Losses in a 'low risk' entity
- Licensing payments to low tax jurisdictions
- Financial transactions
- Management fees
- Transactions with tax haven entities when no or little economic value is added in these countries or when direct or indirect payments are made to these entities.
- Business restructurings, or changes in TP model.
- TP audit adjustments: The Belgian tax authorities can apply the general penalties upon TP adjustments, as there is no specific transfer pricing penalty regime for TP audit adjustments. These tax penalties can vary from 10% to 200% of the unpaid taxes on the income not declared and can be applied even in absence of bad faith. Interest is also charged on penalties. Late payment interest applies on the total amount of taxes, but not on penalties, if surpassing the deadline.
Since 2018 it will no longer be permitted in Belgium to deduct available tax assets carried forward from previous years (e.g. carried-forward tax losses) from any upward tax/transfer pricing adjustment.
- Lack of statutory TP documentation: Belgian tax law contains no specific penalties concerning transfer pricing other than penalties ranging from €1,250 to €25,000 in the case of non-compliance with the transfer pricing documentation reporting obligations. The fine will only be imposed as from the 2nd infringement.
Although there is no hierarchy within the transfer pricing methods, in practice, the comparable uncontrolled price method is still the preferred method of the Belgian tax authorities.
In Belgium, in general, pan-European benchmarks are accepted to document an arm's length remuneration for intercompany transactions.
Although the Belgian Circular confirms that any point within the interquartile range can be considered as being at arm’s length, there is an increased pressure from the tax inspectors to select the median.
Note also that the Belgian Tax Authorities cannot use 'secret comparables'. There are also no published TP 'safe harbours' or norms in Belgium.
With respect to low value-adding intra-group services, the Belgian tax authorities accept a cost plus of 5% as 'safe-harbour rule' in order to reduce the compliance cost for such transactions, as long as the services do not relate to the core business, no intangibles assets, no risk, etc., in line with the OECD Transfer Pricing Guidelines.
- TP advance pricing agreements or rulings are available to any taxpayer with intercompany transactions. A ruling can cover a maximum period of five years. A large part of the rulings, dealing with transfer pricing, are published on an anonymous basis.
- An advance pricing agreement may be unilateral between one tax administration and one taxpayer or bilateral/multilateral between two or more tax administrations.
- Applications for unilateral APAs cannot relate to situations or transactions that have already had any tax effect. Bilateral and multilateral applications must in principle also be filed prior to the start of the intended transactions. For practical reasons, the General Administration of Taxation of the Department of International Affairs for bilateral and multilateral APAs (GATDIF) may allow for bilateral and multilateral APAs that the request is submitted no later than the last day of the financial year in which the transactions has started.
- Rollbacks are not available for unilateral APAs. Rollback is available for bilateral and multilateral APAs when the relevant facts and circumstances of prior years are identical to those in the proposed APA and the assessment periods for those years have not expired when the bilateral or multilateral APA is concluded with the relevant foreign tax authority. The foreign tax authority must also approve of the rollback. Fees are not due for initiating the MAP and APA procedure.
- Companies not exceeding one of the above-mentioned thresholds (50 million EUR operational and financial income, balance sheet total of 1 billion EUR or 100 FTEs), are not obliged to file transfer pricing documentation.
- Belgian tax authorities have been focusing increasingly on transfer prices and we see no end to this development. Within the Belgian tax authorities, there is a specific transfer pricing team. The TP tax audit file selection by the Belgian authorities is made through a data mining tool. Tax auditors place a lot of importance on the economic analyses but also on the completeness of the underlying legal documents (agreements, policies, etc.).
- Transfer pricing audits by specialized tax inspectors can focus on any intragroup transaction even if it resulted in an artificial increase of the Belgian taxpayer’s revenue. We noticed that transfer pricing audits are not only confined to multinationals but also spreading to smaller international groups.
- Belgium reintroduced an adjusted DST proposal mentioning a 3 percent tax on revenues from the below activities.
- The tax applies to three main categories of activities:
- The sale of advertising space on a digital platform, targeting the users of the platform;
- The sale of user data generated from user-activities on a digital platform; and
- Digital intermediation services that facilitate interaction between users of a digital platform and that facilitate the exchange of supplies of goods or services between those users.
- The tax is applicable to companies with global revenues exceeding 750 million EUR and domestic revenues exceeding 5 million EUR.