The Belgian tax authorities recommended corporate taxpayers already in the late 1990s to prepare adequate transfer pricing documentation. Until now, Belgian tax legislation does however not contain a formal obligation to have such TP documentation in place.
Given the minimum standard identified by the OECD under BEPS Action 13 on Transfer Pricing Documentation and Country-by-Country Reporting, the Belgian government is currently, however, preparing legislation to introduce formal requirements regarding the transfer pricing documentation that must be prepared and filed.
The Belgian Ministry of Finance recently shed some light on how this draft legislation is evolving and what can be expected.
Hereby some key points:
- The required TP documentation will include a Master File, Local File and CbC Report. As to the content of the Master File and the CbC Report, Belgium will in principle follow the OECD standard. As to the Local File, it can be expected that the Belgian legislator will identify additional information to be provided, on top of what is to be included under the OECD standard.
- Both Belgian companies and Belgian permanent establishments which must - under Belgian accounting law - keep Belgian accounts, will have to comply.
- The OECD threshold of a consolidated turnover of EUR 750 million under which no CbC reporting is required will also be introduced in Belgian legislation. Certain other thresholds are being considered with respect to the establishment of a Master File and Local File. These thresholds may be based on consolidated turnover, the size of the company or the volume of intercompany transactions.
- Belgian subsidiaries and permanent establishments will be required to file the CbC report (secondary filing) in case of parent companies not subject to CbC reporting or established in a country which does not have a treaty with Belgium providing for an adequate exchange of information.
- The normal 1 year deadline as provided by the OECD for filing CbC Reports will be applicable.
- Filing of CbC Reports by so-called Surrogate Parent Entities will be allowed.
- Confidentiality of the TP documentation is considered to be sufficiently secured through the current provisions of Belgian law without the need for specific new provisions.
- With respect to penalties in absence of the necessary TP documentation, further thought is still given as to whether the penalties currently in Belgian tax legislation suffice or whether specific penalties need to be imposed.
- The new TP documentation requirements will apply to all accounting years starting on or after 1st January 2016.
- It should in principle be possible to have Belgian TP documentation drafted in English.
The information gathered through the CbC reporting will be mainly used by the Belgian tax authorities for risk analysis purposes and to identify BEPS related planning. This will be further explained through a Memorandum of Understanding that will be issued.
As the Belgian standard statute of limitations is 3 years and given the 1 year filing deadline of the CbC Reports and subsequent time needed to have this information exchanged between states, it is expected that Belgium will mainly monitor the data collected over a number of years to spot trends or evolutions indicating a higher risk. The full effect of the CbC reporting in the Belgian tax audit landscape will therefore probably only emerge over a somewhat longer period.
While the above is obviously still subject to change as the draft legislation on Belgian transfer pricing documentation requirements evolves, it is good to establish that the Belgian government adheres to what is proposed by the OECD (except for the fact that the Local File may need to contain specific additional information) and that a clear understanding of what this means for business is being demonstrated.