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Documentation and reporting
Rules and procedures
What rules and procedures govern the preparation and filing of transfer pricing documentation (including submission deadlines or timeframes)?
Until recently, Belgian law included no formal transfer pricing documentation and reporting requirements. However, in 2016 Belgium transposed the transfer pricing documentation and reporting obligations introduced by EU Directive 2016/881/EU concerning the mandatory automatic exchange of information (which amended EU Directive 2011/16/EU on administrative cooperation in the field of taxation) and Base Erosion and Profit Shifting (BEPS) Action 13 into national legislation (Articles 321/1 to 321/7 of the Income Tax Code). These requirements consist of filing a country-by-country report for the group’s Belgian parent and filing a master and local file for each of the Belgian group entities with the Belgian Tax Authority (BTA). The requirements apply for financial years starting on or after January 1 2016.
Under Article 321/2 of the Income Tax Code, the Belgian parent entities of multinational groups with a consolidated gross revenue exceeding €750 million must file a country-by-country report that includes financial information (eg, revenue, profit before income tax, income tax paid and accrued and number of employees) on the multinational group’s entities for every jurisdiction in which it is active. The same obligation applies to Belgian companies:
- that are members of a qualifying group and have been appointed as a surrogate parent entity for country-by-country report filing purposes; or
- in the absence of an appointed surrogate parent, when the ultimate parent is established in a country that did not introduce the country-by-country report obligations or did not exchange its country-by-country report with Belgium.
In addition, an annual notification duty applies for each Belgian entity regarding the identity and jurisdiction of the group entity responsible for filing the country-by-country report on behalf of the group. Article 321/6 provides that the BTA can use the country-by-country report only to assess risks relating to transfer pricing and BEPS and for statistical purposes (and not as a basis to assess corporate income tax).
Each Belgian group entity must file a master and local file if at least one of the following thresholds is exceeded on the basis of the standalone annual accounts of the financial year immediately preceding the previous financial year:
- a total operational and financial income of €50 million;
- a balance sheet total of €1 billion; and
- an annual average of 100 full-time employees.
What content requirements apply to transfer pricing documentation? Are master-file/local-file and country-by-country reporting required?
The master file must include an overview of:
- the group;
- its intangibles;
- intra-group financial transactions;
- the group’s consolidated financial and fiscal position; and
- the group’s overall transfer pricing policy.
The master file must be submitted to the Belgian Tax Authority (BTA) within 12 months from the reporting period.
The local file consists of:
- general business and financial information concerning the local entity; and
- financial information on intercompany transactions and transfer pricing methods.
The second part must be filed only if at least one of the respective entity’s business units has carried out cross-border intercompany transactions exceeding €1 million in the preceding financial year.
The local file must be included with the annual corporate income tax return.
Model forms are available for:
- the country-by-country report;
- the country-by-country report notification; and
- the master and local file.
The country-by-country report and master file forms are consistent with Organisation for Economic Cooperation and Development (OECD) guidance. The Belgian local file model strongly deviates from the standard recommendations of BEPS Action 13 regarding the information to be included in the local file.
What are the penalties for non-compliance with documentation and reporting requirements?
Failure to comply with the new documentation requirements within the abovementioned timeframes triggers administrative fines amounting to between €1,250 and €25,000 as of the second violation.
What best practices should be considered when compiling and maintaining transfer pricing documentation (eg, in terms of risk assessment and audits)?
It is of paramount importance to prepare thorough transfer pricing documentation that is in line with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration, even if the group does not fall within the mandatory scope of the law on documentation requirements. Well prepared documentation will likely decrease the chances of an in-depth tax audit.
In addition, it is essential that actual prices and intercompany transactions are in line with the transfer pricing analysis and can be reconciled with the group’s financial statements.
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