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Transfer pricing methods

Available methods

Which transfer pricing methods are used in your jurisdiction and what are the pros and cons of each method?

There are no specific guidelines or recommendations to determine an arm’s-length price in Belgium for legislation enacted by the federal legislature or circulars issued by the Belgian Tax Authority (BTA).

The BTA’s 1999 circular refers to the Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration and contains a summary of Chapters II and III on transfer pricing methods. In accordance with the OECD guidelines, the selection of the most appropriate transfer pricing method should consider:

  • the nature of the functions performed;
  • the risks assumed; and
  • the assets employed.

The following methods that the OECD guidelines address are accepted and employed under Belgian transfer pricing practice:

  • traditional methods, including:
    • the comparable controlled price method, which is usually applied where external or internal comparables are available; this is typically the case for intragroup loan agreements;
    • the cost plus method, which is usually applied for intragroup services or manufacturing activities with low added value and makes use of external and internal comparables; and
    • the resale price method, which is often used in case of intragroup distribution activities; and
  • transactional methods, including:
    • the transactional net margin method, which is most often applied, given the practical difficulties in applying other methods; and
    • the profit split method.

In addition, for specific types of transaction (eg, those involving the transfer of intangibles), other valuation-based methods are applied and accepted in practice, such as the relief of royalty method or a residual discounted cash flow.     

Preferred methods and restrictions

Is there a hierarchy of preferred methods? Are there explicit limits or restrictions on certain methods?

Belgium has no official hierarchy of acceptable methods, no best method rule and no legal limits or restrictions in this respect.

Comparability analysis

What rules, standards and best practices should be considered when undertaking a comparability analysis?

A comparability analysis is the backbone of a transfer pricing analysis and consists of five determining factors:

  • the characteristics of the goods or services – differences in the specific characteristics (eg, quality or reliability) of goods or services usually explain, or at least partially explain, the differences in their market value;
  • functional analysis – analysing and comparing the functions performed by the parties, which includes an analysis of the activities exercised, the risks assumed and the assets employed;
  • contractual clauses – these may set out the terms with respect of liability and risk which impacts the functional analysis;
  • economic circumstances – the arm’s-length principle may vary depending on the markets concerned (eg, the degree of competition and purchasing power of consumers); and
  • company strategy – the group’s level of risk aversion partially determines its strategy and risk appetite.

Special considerations

Are there any special considerations or issues specific to your jurisdiction that associated parties should bear in mind when selecting transfer pricing methods?

There are no special considerations or issues specific to Belgium that associated parties should bear in mind when selecting transfer pricing methods.

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