Transfer pricing in 2019: time for action?!
TP documentation filing deadline is approaching!
As of 2016, transfer pricing documentation obligations have been introduced in Belgium. Hence, as in many other countries, Belgian entities have to draw up and submit transfer pricing documentation when certain criteria are met. See also our previous newsletter for more information. This means, for example, that qualified Belgian entities, which are part of a multinational group, are obliged to prepare and electronically submit both a Master file and a Local File.
The Master file (form 275 MF) must be submitted within 12 months of the end of the financial year. For reporting periods that close on 31 December 2018, 31 December 2019 will be the ultimate submission date.
The Local file (form 275 LF) must be submitted together with the Belgian corporate income tax return. The general deadline for submitting the Local File form is approaching, as the deadline has been set at 26 September 2019.
The Belgian transfer pricing forms are unique in a global context and include mandatory reporting of all kinds of (potentially sensitive) information and financial data to the Belgian tax authorities. The content of the Belgian Master File and Local File report is in line with OECD Transfer Pricing principles.
A more flexible CbC notification obligation
Recently, changes were made to the country-by-country notification requirements. This obligation applies to Belgian companies of ‘solid’ multinational groups that generate more than 750 million euros of consolidated gross group revenue. Thanks to these changes the filing obligations have become more flexible.
For example, the notification (form 275 CBCNOT) will no longer have to be submitted every year, but only when there is a change in the information to be provided compared to the previous reporting period. This amendment applies to reporting periods ending on or after 31 December 2019.
Increase in transfer pricing audits
Even if a company does not fall under the mandatory transfer pricing documentation requirements, there is still a high chance that special attention will be given to the intercompany transactions of your company by the Belgian tax authorities.
Companies can always receive a very extensive ‘request for information‘ from the Belgian tax authorities with regard to their transfer pricing policy. This questionnaire contains a number of questions regarding the organizational and economic situation of the company, the internal reporting structure, the organization chart and the details of all transactions within the group, the economic role of the Belgian company, etc.
Finally, you will be asked in the final part of the questionnaire to explain the transfer pricing method which is used and to further substantiate this method on the basis of the necessary transfer pricing documentation, benchmark studies and intra-group agreements. In short, during such audit, it will always be necessary to be able to make a fully substantiated transfer pricing file available within a short period of only 30 days.
In recent years, the Belgian transfer pricing audit cell has invested heavily in the expansion of its team as well as in the knowledge (sharing) within the various audit departments. In practice, this has led to a strong increase in the number of transfer pricing audits, whereby both companies that are subject to the transfer pricing documentation obligation and companies that do not have to comply with these obligations (but almost reach the thresholds) are thoroughly audited.
In fact, the Belgian tax authorities carry out very specific audits, whereby files are selected on the basis of objective criteria via their internal data mining system. For example, a strong fluctuation in the accounting results or a restructuring can be a possible trigger for subjecting a company to a transfer pricing audit. Imprudent filling of the transfer pricing forms can also invariably lead to a TP audit.
Transfer pricing in practice
In practice we notice that, even when transfer pricing documentation has been drawn up, the underlying methodology is often implemented incorrectly of inefficient. For example, can you efficiently extract the transfer pricing results of each group entity from your financial reporting on a monthly basis? Do you generate an intra-group invoice on a monthly or quarterly basis in order to get the result in line with your transfer pricing model? What about any VAT and/or customs implications? Do you have a well-founded intra-group agreement available concerning the intra-group charging of support services, sales services, production activities and intra-group financing?
If it turns out that a group transaction is not remunerated in accordance at fair market value, the Belgian (or foreign) tax authorities can argue that a shift in profits has taken place. An adjustment of the taxable base is necessary in this case, with the corresponding risk of international double taxation and tax cash out.
Furthermore, as of 2018, it is no longer allowed in Belgium to set off any available tax losses carried forward against any upward transfer pricing adjustment, if a (general) tax increase of 10 percent is imposed. The consequences of a TP control can therefore be felt more than ever!
Are you prepared for a Transfer Pricing control?
It is clear that having a well-founded and well-considered transfer pricing policy available within an (international) group is becoming increasingly more important. Our transfer pricing team, which has a strategic alliance with transfer pricing partners of the Quantera Global (worldwide transfer pricing alliance), can of course assist your company with drawing up or reviewing the required transfer pricing documentation.
We are happy to help you!