Part 1. The OECD’s master file & local file documentation requirements, unlike the CbC report, are requirements set by each country, even though the OECD has published guidance on what it believes should be included in them. These two reports are not BEPS minimum standards, and therefore are open to modifications or additions by countries to suit their perceived tax needs. At the same time, some governments and many NGOs are pushing for public disclosure of corporate tax information. The combination of these two factors could lead to significant leakage of corporations’ tax information. In that regard:
1. If your country requires the preparation of a master file & local file, what information is it requiring in each file that departs from, is in addition to, or is more than the information suggested by the OECD’s final report on BEPS Action 13, on the master file and local file?
Belgium has introduced a requirement that the Master File and Local File be ﬁled in speciﬁc Form for-mats. Where applicable, the forms must be ﬁled annually using an electronic platform.
The Master File Form and Local File Form must be ﬁled by each Belgian entity in a multinational group where one of the following thresholds is exceeded:
Aggregate operational and ﬁnancial revenue of 50 million Euros;
Master File Form
The Master File Form is composed of the content stipulated by the OECD and must contain descriptions of the following principal elements:
Based on the commentaries on the Form and the explanatory notice regarding the Form, it would appear that, in the case some of the items listed above, slightly more detailed information is being requested that that required compared under the OECD standards. For instance, the following should be included in the Form:
However, in practice, it would be generally expected Master Files prepared in line with OECD guidance are likely to be accepted since the Master File Forms’ parameters will be Master File-compliant.
Although the general concept of the Belgian Local File Form is in line with the OECD concept, the Belgian Local File Form can be said to go beyond OECD requirements, given the detailed quantitative data requested therein.
The Local File Form is composed of three parts:
Part I - General company information: This part requires more general information to be provided such as the management structure of the Belgian entity, its legal ownership structure, its international reporting ﬂows, a description of the main activities per business unit, a list of competitors, information as to Permanent Establishments (PEs), notiﬁcation of restructurings that took place during the year, etc.
Part II - Detailed information regarding each business unit that exceeded the threshold for cross-border transactions with group entities in the last completed ﬁnancial year: This part is only required to be completed where:
This part is more quantitative in nature, requiring more in-formation on cross-border intercompany transactions and applied transfer pricing methods. More speciﬁcally, this part requires detailed descriptions of business unit activities, sales/gross margins/operating margins earned per business unit over the past three years, a list of cross-border intercompany trans-actions involving goods or services, ﬁnancial transactions and other transactions (including the parties involved, the transfer pricing policy applied and the volume of the transactions), in-formation on cost contribution arrangements, a list of advance pricing agreements, etc.
Part III - Other documents: This part is a non-mandatory section that allows additional useful information to be pro-vided in order to interpret the contents in Part I and Part II of the Form. For instance, transfer pricing studies, contracts, organizational structure, etc.
2. Does your country require the master file, local file, and any supplementary information actually to be filed with the tax authorities, or merely to be retained and produced upon request?
The Master File Form and Local File Form are required to be ﬁled with the tax authorities.
The Master File Form must be ﬁled for accounting years starting on or after January 1, 2016. It is required to be ﬁled with the Belgian Tax Authorities within a period of 12 months after the close of the reporting period of the group concerned.
The Local File Form must be ﬁled together with the corporate income tax return. The ﬁling due date therefore corresponds to the ﬁling date for the corporate income tax return (i.e., September 27, 2017 for Financial Year 2016). Part I and Part III of the Local File Form must be ﬁled for accounting years starting on or after January 1, 2016. Part II of the form need only be ﬁled for accounting years starting on or after January 1, 2017.
There is an obligation to prepare the Forms but no obligation to prepare or ﬁle complete transfer pricing reports. There is however an obligation to have benchmarking studies in place. Such benchmarking studies, however, need not be ﬁled along with Local File Forms. It is recommended in practice to pre-pare full transfer pricing reports besides ﬁling the Master File Form and Local File Form.
3. Does your country have a position on sharing information in the master file and local file with other tax authorities, and would this include information that departs from or is more than what is indicated in BEPS Action 13’s final report?
In accordance with the Multilateral Competent Authority Agreement dated January 27, 2017, the Belgian speciﬁc Master File Form and Local File Form could be shared with the tax authorities of other countries. Further, the Directives of 2016/881 of May 25, 2016 allow the automatic exchange of country by country (CbC) reports. Belgium implemented the Program Law of June 2, 2016 as an outcome of OECD’s BEPS Action 13. As explained in Point no. 1, the Belgian Forms require more de-tailed information than that required under the OECD standards.
Additionally, it should be noted that Belgian law follows the arm’s length principle. No deﬁnition of a related company exists. The existence of related companies is determined on the basis of the facts, such as close cooperation, delivery of raw materials and product, ﬁnancing, etc. Proﬁts may be recaptured where conditions are made or imposed between two companies in their commercial or ﬁnancial relations that differ from those that would be made between independent enterprises. A relationship in this respect can be based on shareholding, management or supervision.
4. If a taxpayer has prepared a master file according to requirements of its home country, and has prepared a local file in accordance with requirements of your country, what is your country’s position on seeking information or documents from the home country that are not required and not contained in the local file prepared for your country? What rights would a taxpayer have to avoid producing that information if an auditor from your country requested it?
If the taxpayer has prepared a Local ﬁle in accordance with the requirements of the Belgian Transfer Pricing Regulations, ide-ally it is expected to capture all the information required by the stipulations in the Belgian Local File Form. If this is not the case, the taxpayer may be asked to produce the information that is lacking. However, the likelihood of such a scenario transpiring may be low because, under the Belgian Regulations, taxpayers are required to ﬁle the Local File Form by the due date for their tax return. The information required by these forms must be ﬁled. There is no requirement to prepare de-tailed transfer pricing reports but it is recommended that tax-payers should have the transfer pricing reports in place because of the obligation to have benchmarking studies in place.
Companies or PEs that fail to meet the reporting or ﬁling requirements (i.e., the Local File Form) will be subject to penal-ties ranging from 1,250 Euros to 25,000 Euros. However, these penalties are applicable only on a second or subsequent infringement.
The Belgian Income Tax Code (BITC) provides that payments exceeding an annual amount of 100,000 Euros made to: (1) a person in a tax haven jurisdiction or a jurisdiction that has not substantially implemented the internationally agreed OECD tax standards on the exchange of information; (2) a PE in such a jurisdiction; or (3) a bank account in such a jurisdiction, by a person subject to Belgian corporate income tax, must be re-ported to the Belgian tax administration. This is done by attaching Form 275F to the annual tax declaration. If such a payment is not reported, or if the payer cannot prove that the payment is made in consideration for ‘‘actual and genuine transactions with persons other than artiﬁcial constructions,’’ the payment cannot be treated as a tax-deductible expense and will therefore be subject to Belgian corporate income tax at the rate of 33.99 percent. The burden of proving that a payment is so made lies with the taxpayer.1
Belgium has effective tax treaties providing for the exchange of information and the Belgian tax authorities may seek the required information through the exchange of information mechanisms. Belgium is one of the ﬁrst 30 countries to make a joint statement in which they strongly support the development of the single global standard for the automatic exchange of in-formation between tax authorities.
Further, the Belgian tax authorities may share information with another Member State of the European Union.2 The information may include an exchange of rulings and transfer pricing agreements.3 Additionally, as part of continuing efforts to boost transparency, Belgium has signed the Multilateral Competent Authority Agreement for the mandatory automatic exchange of CbC reports.4
The obligations regarding the submission of information to the tax authorities are restricted by the mitigating effects of the general principles of good government. The Minister of Finance has ruled that asking for excessive information is prohibited and that the Belgian Tax Administration (BTA) should only use it powers to demand information moderately and carefully. Requiring taxpayers to ﬁll out comprehensive questionnaires is therefore not allowed.
Part 2. In addition to the master file and local file, countries are now exchanging information about rulings, and some are requiring reporting of aggressive tax structures or transactions.
1. If your tax authority believes there is a possibility that an affiliate of a company in your country may have obtained a ruling or may have reported an aggressive position, what authority does your country’s tax authority have to try to obtain that information (i) from the company in your country, and (ii) from another tax authority? What rights would a taxpayer have to prevent the tax authority from obtaining that information?
The BTA has broad powers to conduct an audit for any purpose related to the administration and enforcement of the BITC. Under the BITC, the BTA has extensive powers to access information and, consistent with those powers, may compel taxpayers, third parties or other public authorities to provide them with all kinds of information sought for purposes of assessing income or collecting tax. A taxpayer has the right to prevent the tax authorities from obtaining such information if the taxpayer raises a defense of professional secrecy.
2. What other organizations within your country may your tax authority share taxpayer information with? Are there restrictions on what that information may be used for? Does a taxpayer have rights to restrict that sharing?
Information obtained during an audit of a taxpayer may be used for purposes of taxing other taxpayers.6 The BTA may also request from any taxpayer information deemed necessary to determine the tax liability of any other taxpayer.7
Though the BTA is authorized to collect and exchange the personal data necessary for carrying out its statutory mission, a system for the interchange of data between the various Tax Administrations and Services of the Federal Public Service of Finance (FPSF) is in place. The exchange of data, the content of data, and access to data are subject to the authorization and instruction of an internal authority set up by Royal Decree. All the administrations of the FPSF are obliged to make available to all ofﬁcials of the Public Service the relevant information in their possession that contributes to the furtherance of the obligation of these representatives with a view to the establishment or collection of taxes. Any ofﬁcial of the FPSF who is regularly responsible for carrying out inspection or investigations is entitled to take, search for, or collect relevant information that contributes to the establishment of a tax liability or the recovery of taxes.8
Every taxpayer whose data is stored has a right to be in-formed and to obtain access to that data to have it corrected if necessary, except during a tax audit. Further, information relating to judicial proceedings may not be disclosed or copied with-out explicit authorization of the public prosecutor.9
3. Where does your country stand on making any information from the CbC report or the master file, local file, and supplemental information public? Do you anticipate that such a requirement will be implemented and if so, what (if any) power do you see a taxpayer having to restrict or prevent what is made public?
With the aim of increasing transparency, on July 4, 2017, the European Parliament voted in favor of requiring multinational companies to disclose tax information for each country in which they operate. Qualifying multinational groups would be required to publish and make accessible certain information about the taxes they pay in each country – with possible exceptions in the case of commercially-sensitive information.10 Such data would be available for free and made publicly accessible on the website of the ﬁrm concerned. The qualifying entity would also be responsible for ﬁling a report in a public registry managed by the European Commission. It is currently planned to present the information in a common template comprising a number of items broken down by tax jurisdiction.
The public CbCR proposals will soon be discussed by the 28 EU Member States. Based on these proposals, a Council common negotiation position will be drafted by the EU Council Presidency. To reach a decision on the ultimate compromise version, small groups of representatives of the EU Parliament and the Council and the Commission will conduct further discussions.
The ﬁnal text is subject to the approval of a qualiﬁed majority of EU ﬁnance ministers in the Economic and Financial Affairs Council (ECOFIN), as well as the European Parliament. Ac-cording to a dissenting legal opinion of the Council, implementation of the proposals would require the unanimous consent of the Council of the EU, rather than the consent of a qualiﬁed majority. These legislative developments are being carefully monitored in order to determine their potential impact on Belgium. The Court of Justice of the EU may also be requested to rule on this subject.
If any such requirement is implemented, Belgian taxpayers may be able to prevent sensitive information from being made public by using the ‘safeguard clause’. That being said, the desirability of this clause was strongly disputed in the Committee responsible for this dossier. Moreover, it appears ambiguous whether the requisite approval of an eligible majority in the Council (not to mention unanimity) will be attained to promote the initiative of the Commission. It is also worth noting in this respect that the French Constitutional Court has issued a decision concluding that a provision that imposes a country-by-country public ﬁnancial reporting requirement is unconstitutional. In view of these issues, the practical implications of the public CbCR proposals for companies in Belgium are currently unclear.
Dirk Van Stappen, Yves de Groote and Eugena Molla
Original source: Bloomberg Tax
1 Currently the following states are being considered as tax havens from a Belgian perspective: Abu Dhabi, Ajman, Anguilla, Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman Islands, Dubai, Fujairah, Guernsey, Jersey, Island Man, Federation of Micronesia, Monaco, Montenegro, Naura, Uzbekistan, Palau, Ras al Khaimah, Saint-Barthelemy, Sark, Sharjah, Turks and Caicos Islands, Umm al Qaiwain and Wallis-and-Futuna.