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Review and adjustments

Review and audit

What rules, standards and procedures govern the tax authorities’ review of companies’ compliance with transfer pricing rules? Where does the burden of proof lie in terms of compliance?

When a taxpayer provides insufficient information or documentation during a tax audit, the Belgian Tax Authority (BTA) can impose a tax assessment ex officio. This implies a reversal of the burden of proof. As such, it is up to the taxpayer to demonstrate that the profits declared are correct and at arm’s length.

Do any rules or procedures govern the conduct of transfer pricing audits by the tax authorities?

The BTA is subject to the general rules and procedures with respect to tax audits. In addition, on 14 November 2006 a circular was published containing general guidance for tax inspectors and taxpayers on how a transfer pricing audit should be performed. 


What penalties may be imposed for non-compliance with transfer pricing rules?

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 newly introduced transfer pricing documentation reporting obligations.

The following general Income Tax Code penalties also apply to transfer pricing. A tax increase can be imposed when a tax audit leads to an increase in declared taxable income. This would generally be the case if a transfer pricing audit results in a profit adjustment. Depending on the nature and frequency of the infringement, the tax increase can range between 10% and 200% of the tax due on the undeclared income. No tax increase is due if the income has not been declared correctly due to circumstances that are beyond the taxpayer’s control.

An administrative fine ranging from €50 to €1,250 can be imposed for each violation of the Income Tax Code. This fine can be imposed if the taxpayer refuses to cooperate during a transfer pricing audit.

The tax authorities can establish an ex officio assessment if a taxpayer does not provide the tax inspector with sufficient information and documentation regarding a tax audit. Criminal penalties can also be imposed if a taxpayer acts with fraudulent intent or the aim of causing harm.


What rules and restrictions govern transfer pricing adjustments by the tax authorities?

The BTA can only apply tax adjustments and claim additional taxes to be paid within three years before the assessment year. This three-year limitation period is extended to four years in the case of wilful attempts to defeat or evade tax.

As of 2018, no deduction of current year losses and deferred tax assets (eg, carry-forward tax losses) can be made on a taxable basis as a result of a tax audit, except in relation to dividends received during the same taxable period. The new rule does not apply for infractions committed negligently and for which no tax increases are applied. 


How can parties challenge adjustment decisions by the tax authorities?

There are two different ways to dispute transfer pricing adjustments asserted by the BTA, which taxpayers can use simultaneously:

  • internal remedies stipulated by Belgian domestic tax legislation (ie, an administrative appeal which can be followed by a judicial appeal); and
  • a mutual agreement procedure based on a double tax treaty and an arbitration procedure by virtue of the EU Arbitration Convention (90/436/EEC). 

Mutual agreement procedures

What mutual agreement procedures are available to avoid double taxation arising from transfer pricing adjustments? What rules and restrictions apply?

Belgium grants access to the mutual agreement procedure in cases where a transfer pricing dispute has arisen between a taxpayer and the BTA or a foreign tax authority. As an EU member, and under the EU Arbitration Convention, Belgium must resolve any double taxation arising from EU transfer pricing cases.

An audit settlement is never an obstacle to the functioning of the mutual agreement procedure.

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