A new Act has been adopted by Belgian Parliament introducing a legal TP documentation obligation in accordance with BEPS action 13, which will enter into force for financial years as of 1 January 2016.
Legal obligation to submit TP documentation
Through coordinated efforts within the Organisation for Economic Co-operation and Development (OECD), over a hundred countries and jurisdictions developed a package of measures against tax avoidance strategies (‘Base Erosion and Profit Shifting’ - Actions 1 to 15). One of these BEPS actions, action 13, concerns new rules regarding transfer pricing documentation.
The Program Act of 1 July 2016 has now been published in the Belgian State Gazette, implementing that BEPS action 13 and introducing a legal obligation for Belgian entities exceeding certain thresholds to have specific transfer pricing documentation available.
The following Belgian entities are targeted by the Program Act:
1. Belgian parent companies, subsidiaries and permanent establishments;
The Program Act targets any Belgian entity that is or is required to be included within the consolidated accounts of a multinational group, including permanent establishments to the extent they are required to publish their own separate annual accounts, when such entity attains or exceeds, on the basis of its own annual accounts of the financial year preceding the most recently ended financial year, at least one of the following thresholds:
- Total yearly operational and financial income of 50 million EUR (excluding non-recurrent/exceptional income);
- Balance sheet total of 1 billion EUR;
- Annual average of 100 full-time employees.
That Belgian entity of the multinational group is required to submit:
- A master file including relevant information at group level, such as (but not limited to) a description of its activities, properties and assets owned, overview of its intra-group financial transactions, financial and tax position of the group, corporate governance at group level, etc.;
- A local file including:
- a general form with a description of the Belgian entity’s activities, identification of the business units within the Belgian entity and detailed information about the intra-group transactions performed exceeding 1 million EUR, etc.; and
- a form for each business unit with a transfer pricing analysis of the intra-group transactions performed by that unit.
2. Belgian ultimate parent companies;
Belgian ultimate parent companies of a multinational group with a consolidated yearly gross income of at least 750 million EUR are required to submit:
- A master file (cf. supra);
- A local file (cf. supra);
- A country-by-country report including:
- a form identifying each of the multinational group’s entities, including its jurisdiction or country of incorporation and/or residence and its main activities; and
- a form containing information for each of the jurisdictions in which the group performs activities, on:
- the amount of turnover, benefits or losses before tax;
- the income tax paid;
- the payable income tax as included within each of the individual annual accounts;
- the paid-up capital and retained earnings;
- the number of employees (expressed in full-time equivalents);
- all the assets with the exception of liquidities, cash investments expiring not later than after 3 months, which are subject to significant value fluctuations, intangible assets and shares booked as financial assets.
Is considered as an ultimate parent company, an entity of a multinational group that directly or indirectly holds an interest in one or more other entities of that multinational group implying the obligation to have consolidated accounts in the jurisdiction where that entity is established and no other entity of the group holds an interest in that (parent) entity.
The master file and country-by-country report (to the extent applicable) are required to be filed electronically within 12 months as of the end of the financial year in question. The local report is to be filed together with the yearly income tax return. Moreover, a Belgian entity falling within this scope will be required to notify to the Belgian tax authorities, at the end of the financial year at the latest, whether it is the ultimate parent company of the multinational group or not.
Specific administrative penalties for non-compliance ranging from 1,250 – 25,000 EUR have been included in the Program Act.
Applicable as of 1 January 2016
The legal TP documentation obligation will be applicable for reporting periods or financial years starting as of 1 January 2016. Belgian entities of multinational groups are therefore recommended not to postpone the preparation of adequate TP documentation.