CMS Expert Guide to Transfer Pricing Documentation in Belgium

As of 1 January 2016, specific transfer pricing documentation requirements have been introduced in Belgian law with the purpose of aligning domestic law with EU Directive 2016/881/EU implemented as a result of Action 13 of the OECD BEPS Report.  1  These requirements are laid down in article 321/1-321/7 and follow the Belgian Income Tax Code (BITC). 

Every Belgian entity of a multinational group of associated enterprises is required to submit a master file form (form 275MF) and a local file form (form 275LF) when one or more of the following thresholds, based on the unconsolidated annual financial statements for the accounting period preceding the most recent accounting period, is exceeded: 

• EUR 50 million in operating and financial income (excluding non-recurrent/exceptional income);  
• a balance sheet total of EUR 1bn; 
• an annual average workforce of 100 full-time equivalents

With regard to the local file, an additional threshold exists; only the Belgian entities for which cross-border intragroup transactions exceed EUR 1m are required to submit part B of the local file. 

2.1 Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)? 

All transactions with associated enterprises have to be documented and their price must be justified at all times. With regard to the local file however, only the Belgian entities for which cross-border intragroup transactions exceed EUR 1m are required to submit part B of the local file. 

2.2 What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)? 

Various notions relevant for the transfer pricing reporting requirement (e.g. “group”, “enterprise” and “group entity”) are defined in article 321/1 of the BITC. 

However, the notion of “associated enterprises” itself is not specifically defined for Belgian transfer pricing purposes. Reference is to be made to the Belgian Code on Companies and Associations in accordance to which “associated enterprises” are: 

1. any company that controls another company (based on share ownership, voting power, power to appoint the majority of the members of the board);
2. any company that is controlled by another;
3. companies that are part of a consortium;
4. other companies that are controlled by the companies mentioned above on (A), (B) and (C). 

For transactions between a permanent establishment and its head office, Belgium adheres to the OECD’s “functionally separate entity approach”. Based on this approach, a permanent establishment's taxable profit should be based on arm’s length transfer pricing as if the permanent establishment were a separate entity within the taxpayer’s group. As a result, transactions between a permanent establishment and its head office are in the scope of the documentation requirement. 

2.3 For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD? 

Yes, Belgium adheres to the EU TPD.  

2.4 For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach? 

The legal provisions are very similar. The three layers have been adopted as provided by Action 13 (master file, local file and CbCR). 

In Belgium, the content of the master file and the CbCR is fully consistent with the OECD master file or CbCR respectively.  

The Belgian local file form is clearly inspired by the OECD local file, yet there are a few significant differences. On the one hand, in terms of numerical data of intra group and other transactions, the Belgian local file form is more stringent than the OECD local file. On the other hand, the Belgian local file requirements are less stringent than described in the OECD approach with regard to the availability of actual transfer pricing studies. A Belgian group entity is not explicitly required to have a detailed functional analysis and benchmark study available, even though all transactions with associated enterprises must be documented and their price must be justified at all times. 

2.5 Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state? 

The Belgian tax authorities may request information only from Belgian taxpayers, including permanent establishments of foreign entities in Belgium. Such requested information could include information located in another State. Non-resident taxpayers do not need to provide any specific information upon request.  

If the non-resident taxpayer is a counterparty to a transaction involving a Belgian tax resident taxpayer, information relating to the non-resident taxpayer may be requested from the Belgian party to substantiate the pricing of that transaction for Belgian tax purposes, even if this information concerns non-resident taxpayers or information which is located in another state. 

2.6 If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)? 

In general, there is no specific regional limitation. In practice, regional benchmark studies and, in particular, pan-European benchmark studies are generally accepted by Belgian tax authorities, provided that they are relevant. This is the case if, for example, Belgian data is unavailable or too limited. 

2.7 If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intragroup services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies? 

Belgium, by virtue of it having adopted the revised OECD Transfer Pricing Guidelines, accepts OECD’s simplified approach for determining the arm’s length remuneration of low value-adding intra-group services. Under this approach, the service provider can apply a profit mark -up of 5% on all costs related to the services (not for disbursements) and is subject to less detailed documentation requirements (e.g.a benchmark study). The Belgian tax authorities in their commentaries explicitly clarify which types of services may be within the scope of the simplified approach. The commentaries are in line with OECD Guidelines. 

2.8 What language(s) are to be used by taxpayers in submitting the TP documentation? 

The transfer pricing documentation can be submitted in English or in one of the official languages of Belgium depending on the location of the registered seat/establishment of the company: French, Dutch or German.  

Although English is accepted, in the event of an audit a translation in one of the official languages (depending on the location of the registered seat/establishment) can be requested by the tax authorities. 

Both the master file and the CbCR must be filed within 12 months as of the closing of the financial year. 

The local file is considered an integral part of the corporate income tax return and, consequently, must be submitted together with and within the same legal deadline as the corporate income tax return of the taxpayer (which is generally at the end of the third quarter of the year following the taxable period).  

Errors in the local file or the non-filing of the local file can lead to an incorrect or incomplete tax return, which can be corrected by Belgian tax authorities. In this case, the Belgian tax authorities can impose a tax increase of between 10% (first infringement, unless waived in specific circumstances if good faith can be demonstrated) and 200% (in case of fraud or fraudulent intent). 

If a tax increase of at least 10% is applied, the amount of the correction will be the minimum taxable basis. No deduction of current year losses and tax attributes carried forward (e.g. carry-forward tax losses) can be made on the amount of the upwards adjustment. 

Furthermore, a qualifying Belgian entity will be required to notify 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. 

As of 19 July 2018, new administrative penalties have been implemented to prevent and sanction non-compliance with transfer pricing documentation requirements. The following, inter alia, are regarded as non-compliance: the failure to submit documents or their late submission, or the submission of incomplete or incorrect documents with or without the intention of evading tax. These penalties may be imposed for non-compliance regarding the master file, the local file, the CbCR or the CbCR-notification.  

The penalties range from EUR 1,250 for the first violation to a maximum of EUR 25,000 from the second violation. If bad faith can be demonstrated by the Belgian tax authorities, a fine of EUR 12,500 can be imposed as of the first violation. 

Moreover, if the requested information is not provided, the tax authorities may adjust the taxpayer’s taxable basis on the grounds that the transaction does not comply with the arm’s length principle. 

If the required information is not provided, the tax authorities may adjust the taxpayer’s taxable basis. The taxpayer must then demonstrate based on supporting evidence/documentation that the transaction complies with the “arm’s length principle” and that the tax authorities may not adjust its taxable basis. This does indeed imply a reversal of the burden of proof. 

The reassessment of the taxable basis or the application of penalties will not prevent the taxpayer from engaging a mutual agreement procedure provided for by a double-tax treaty or by any international treaty, to the extent that they do not result from a tax law infringement performed with fraudulent intent. 

If, as a result of a mutual agreement procedure (or, for EU countries, the procedure contained in the EU Arbitration Convention), additional tax is levied in Belgium, Belgian law stipulates that the tax examination and tax assessment period is extended by 12 months from the termination of the MAP or arbitration procedure. 

The obligation to file a CbCR is implemented in Belgium. 

The Belgian CbCR requirement applies to accounting periods starting from 1 January 2016. The report must be filed within 12 months following the end of the accounting period concerned (e.g. at the latest 31 December 2023 for accounting periods ending on 31 December 2022). 

The CbCR is required for multinational groups for which the consolidated gross group revenue, such as reflected in the group’s consolidated financial statements in the accounting period preceding the most recent accounting period, exceeds the threshold of EUR 750 million. The consolidated gross group revenue taken into account includes turnover, financial income and non-recurring income. 

It is important to note that the CbCR filing obligation only exists in Belgium when the group’s ultimate parent entity is headquartered in Belgium. As a result, it is possible that no Belgian entity of the group is required to file a CbCR. There are, however, some exceptions where a CbCR must be submitted even when the group’s ultimate parent entity is not headquartered in Belgium. This is, for example, the case when the country where the CbCR is submitted fails to respond to requests for information from Belgian tax authorities or when the treaty with this country does not include an exchange-of-information clause. 

Each Belgian group entity of the group which is required to file a CbCR, must inform the tax authorities no later than the last day of the reporting period of the multinational group whether it is the group’s ultimate parent entity. When it is not the group’s ultimate parent entity and the group’s ultimate parent entity has been changed during the reporting period, it must indicate the identity of the reporting entity.  

Pursuant to article 321/2 of the BITC, the CbCR must be submitted no later than 12 months after the final day of the applicable reporting period for the group concerned. 

The content of the CbCR form (form 275 CBC), as established by Royal Decree of 8 October 2016, is fully in line with the OECD model. 

Therefore, the information in the CbCR needs to include an overview of the group’s activities, allocated according to the separate tax jurisdictions where the group’s entities or PEs perform such activity.  

The CbCR consists of three tables providing information for each group entity in every jurisdiction. It should include the following information: 

• consolidated information on the amount of revenue and profit or loss before income tax; 
• income tax paid; 
• the paid-up capital; 
• the retained profit; 
• the number of employees (expressed in full-time equivalents); 
• total assets excluding cash, investments with a maturity date of less than three months that are not subject to significant fluctuations in value, intangible assets and shares booked as financial fixed assets. 

In case a required CbCR or its notification has not been delivered to Belgian tax authorities, a penalty ranging between EUR 1,250 and EUR 25,000 can be assessed. The same applies if the CbCR or its notification is incomplete or was not filed on time. The penalty can be imposed on permanent establishments of foreign entities falling within the scope of the TP documentation obligation. 

Belgium has adopted legislation allowing the annual automatic exchange of CbCR, as a result of the multilateral agreement, which entered into force in Belgium on 1 October 2019. 

Not applicable. 

To the extent at least one of the entity’s divisions/business units exceeds a threshold of EUR 1m for cross-border transactions, part B of the local file, including detailed information on the intragroup transactions, is to be filed for each of the entity’s business divisions exceeding the EUR 1m threshold of cross-border transactions. 

While not strictly required, a group entity may also submit part C of the local file, in which the transfer pricing policy of the multinational group is justified. This part C may provide the tax authorities further insight on the cross-border context in which the information included in the local file should be interpreted. 

Part B of the local file must include the relevant financial information of transactions between the Belgian entity and the foreign entities of the multinational group and the applied transfer pricing methods thereto. 

Part C relates to optional attachments such as the transfer pricing methodology description, framework agreements, transfer pricing studies, etc. 

In their administrative guidelines, the Belgian tax authorities further acknowledge that the determination of the appropriate remuneration is not an exact science, but they require from the taxpayer to provide sufficient documentation to determine the at-arm’s-length price. If deemed insufficient, Belgian tax authorities have the means to perform their own benchmark studies. 

The languages that are used in Belgium are French, Dutch or German depending on the location of the registered seat/establishment of the entity. The Belgian tax authorities, however, also accept transfer pricing documentation drafted in English. 

The local file (including, as the case may be, part B and part C) must be filed together with the yearly income tax return (in general at the end of the third quarter). 

The obligation to file part B applies for cross-border transactions with other group entities during the most recently closed financial year exceeding EUR 1m. Filing/completing of part C is optional. 

When the local file, including its part B, is not filed, is filed late or is incomplete, penalties ranging between EUR 1,250 and EUR 25,000 may be imposed. 

As mentioned above, the local file is considered an integral part of the corporate income tax return and, consequently, must be submitted together with the corporate income tax return of the taxpayer within the same legal deadline as (which is generally at the end of the third quarter).  

Errors in or the non-filing of the local file can lead to an incorrect or incomplete tax return, which can be corrected by the Belgian tax authorities. In this case, in addition to imposing a penalty, the Belgian tax authorities can impose a tax increase of between 10% (first infringement, unless waived in specific circumstances if good faith can be proven) and 200%. 

If a tax increase of at least 10% is applied, the amount of the correction will be the minimum taxable basis, no deduction of current year losses and tax attributes carried forward (e.g. carry-forward tax losses) can be made on the amount of the upwards adjustment. 

There is no penalty for not submitting part C of the local file. 

Not applicable.