Whereas Belgium did not have any formal transfer pricing documentation requirements before the approval of the new law, transfer pricing documentation will be mandatory, when certain criteria are fulfilled, as from financial years starting January 1 2016. As such, the three-tiered documentation approach as provided under the OECD’s BEPS Action 13 is introduced: Master File, Local File and Country-by-Country Reporting (CbCR).
Master File and Local File
Each Belgian entity or Belgian permanent establishment (PE) of a multinational group that exceeds one of the following criteria (on non-consolidated basis):
- Balance sheet total of €1 billion ($1.1 billion);
- “Gross” operational and financial revenues (excluding extra-ordinary) of €50 million; or
- Annual average number of employees of 100 (full-time equivalents)
is required to submit a Master and Local File to the Belgian tax authorities.
Whereas the Master File needs to be filed within 12 months after the close of the reporting period of the group, the Local File is required to be submitted together with the tax return (hence, before the Master File).
The precise filing formats for the Master File and Local File are yet to be published in a Royal Decree (expected by end of September or early October 2016), whereby it may be expected that the content of the Master File will be in line with the content provided by OECD’s BEPS Action 13 Final Report (new Chapter V of the OECD Transfer Pricing Guidelines). The content of the Local File, however, is expected to deviate from the content suggested by the OECD.
From the law, it is clear that the Local File consists of two parts, where the first part must contain information related to the local entity. Whereas the first part needs to be submitted by all taxpayers qualifying under the above criteria, the second part of the Local File only needs to be completed when at least one of the Belgian taxpayers business units (any part, division, department of the Belgian company or PE grouped around a particular activity, product group or technology) has cross-border intragroup transactions in excess of €1 million in the last financial year. The detailed Local File form will need to be completed for each business unit exceeding aforementioned threshold. Although the precise content is still under discussion, according to the law, it should contain more detailed information about the transfer pricing analysis of the transactions between the local entity and the foreign entities of the MNE group, more in particular: relevant financial information concerning the transaction, the comparability analysis and selection as well as application of the most appropriate transfer pricing method.
Every Belgian constituent entity that is the ultimate parent entity of a MNE group with a “gross” consolidated group revenues (operational, financial and extra-ordinary according to the explanatory memorandum) that exceeds €750 million, is required to submit a CbC Report to the Belgian tax authorities within 12 months after the closing date of the reporting period of the group. Under certain circumstances (when the ultimate parent entity is not required to submit a CbC Report), however, the Belgian group entity which is not the ultimate parent entity, can be required to submit the CbC Report. The Belgian group entity can be relieved from this requirement if the MNE group designates a surrogate parent entity. The content of the CbC Report is in line with OECD guidance.
Failing to satisfy the new transfer pricing documentation requirements will result in penalties ranging from €1,250 to €25,000 as from the second violation.
TP Week correspondent for Belgium
Andy.Neuteleers@tivalor.com | tivalor.com