As part of the BEPS implementing measures, the Belgian Law of 1 July 2016 introduces a set of new transfer pricing rules that apply to Belgian companies as from 1 January 2016 (see Articles 321/1 to 321/7 of the Belgian Income Tax Code – BITC). These new provisions aim to implement Action 13 of the BEPS action plan under Belgian law.
In a nutshell, from a practical perspective, the new regime completes and broadens the already existing regime regarding specific forms of Belgian companies or information that they must provide to the tax authorities in respect of their transfer prices (i.e., Master File, Local File, and Country-by- Country report). Failure to comply with these new rules is sanctioned by administrative fines (up to EUR 25,000 – to be further detailed by Royal Decree).
As a rule, transfer pricing regulations only apply to associated companies. The new regime introduces in this respect a list of new definitions that are integrated into the BITC. Quite surprisingly, these new definitions, including that for an associated company, are not aligned with the notions used by the already existing provisions covering transfer prices under Belgian tax law (e.g., Article 26 BITC).
Any ‘Group Entity’ (as defined by the new Article 321/1, 4° BITC, which is broadly drafted and practically covers almost any Belgian company or permanent establishment that is part of a group) will have to file a Master File if it reaches one of the thresholds below, based on its annual accounts of the previous financial year:
- Its turnover (‘produits d’exploitation’/’bedrijfsopbrengsten’) and financial results amount to EUR 50 million; or
- Its balance sheet total reads EUR 1 billion; or
- It has at least 100 full-time equivalent workers (yearly average).
The Master File must contain specific information that are listed by the Law and aims to give a rough ‘global picture’ of the group.
The same Group Entities will also be required to enclose a Local File with their tax return. This file gives information on the Belgian entity at stake.
In addition, a Belgian Group Entity that meets one of the above criteria and any business units whose transactions realized with other Group Entities reach more than EUR 1 million during the latest financial year must add to the Local File a specific information memorandum containing a rather exhaustive description of the applicable transfer prices.
Finally, if such a Group Entity is the ultimate parent company of the group concerned, it will also have to file the Country-by-Country report containing very precise information (e.g., profit before tax, effective tax liability, paid-up capital, employees on the payroll, etc.) on each jurisdiction where the group conducts its activities, including an exhaustive identification of any Group Entity that is part of the group concerned. Depending on the circumstances, the new regime allows for another Group Entity (i.e., one other than the Belgian ultimate parent company) to validly satisfy this obligation, but the regime also extends this obligation under other scenarios to Belgian Group Entities that are not the ultimate parent.
This set of documentation and the information therein will give the Belgian tax authorities a better view of the transfer pricing ‘profile’ of a group and detect more easily any possible abuse or malfunction.
Belgian Group Entities falling under the scope of application of the new regime will be required to file the Master File and the Country by Country report before 31 December 2017 (on the basis of their annual accounts closed on 31 December 2016).
The Local File will have to be enclosed with the Belgian tax return of the Belgian Group Entity for the assessment year 2017 (i.e., in principle in September 2017).
To be continued
The numerous additional measures and guidelines in respect of transfer prices are key in making the BEPS action plan a success. Having a preventive and efficient management of intragroup remunerations and their supporting documentation therefore appears opportune in the light of the anticipated tax audits that will take place in due course.