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KPMG Belgium’s Transfer Pricing Update seminars 2020

KPMG Belgium’s Transfer Pricing Update seminars

In February 2020, KPMG organized a number of Transfer Pricing update seminars in Brussels, Antwerp, Ghent, and Louvain-la-Neuve. With more than 300 attendees, the level of interest and participation reconfirmed that Transfer Pricing is and remains a hot topic.

Recent developments, including the new Transfer Pricing Circular letter of 25 February 2020, insights from first experiences following TP audits performed by the Special Inspection Department, the BEPS 2.0 earthquake and much more were discussed. During the sessions, polling questions were also put to participants with some interesting results. 

Read on to find out what’s been happening ‘on-the-ground’ and gain some new insight into the latest transfer pricing developments, as experienced by over 300 in-house finance and tax professionals from different companies in Belgium.

BEPS 2.0 – Digital taxation

Just as multinationals are acknowledged by BEPS 1.0, we welcome BEPS 2.0. BEPS 2.0 has resulted in a series of questions on taxation rights and how income should be allocated among countries, specifically with regard to the digital economy.

Based on the ongoing discussions around addressing the challenges of the digitalization of the economy, it is clear that the OECD’s proposals around this will not just impact digital businesses. The focus on value creation, addressing marketing intangibles, and considering significant economic presence, are aspects that will need to be reviewed by all multinationals in their transfer pricing models. The proposals of the OECD covering “marketing intangibles”, “user participation”, and “significant economic presence” are expected to go beyond the arm’s length principle – simultaneously changing the current tax nexus rules which are currently limited to businesses having a physical presence in a jurisdiction.

During the update sessions, we raised the question: “Do you expect your business to be impacted by BEPS 2.0?”. Surprisingly, a slight majority responded no. It’s indeed expected that the BEPS 2.0 project will have a major impact on companies. However it still remains to be seen whether countries can agree on a common approach and the timing that will be feasible in practice.

Do you expect your business to be impacted by BEPS 2.0?
Impact Beps 2.0

The OECD’s work on these proposals for BEPS 2.0 is underway, and expected to continue through 2020, with a consensus foreseen towards the end of 2020.  It is important that multinationals start to consider the potential impact and what BEPS 2.0 means to them, and identify areas in their transfer pricing models that might need to be reassessed.

Belgian Transfer Pricing Circular letter

On 25 February 2020, the Belgian tax administration published the final version of the guidance (circular letter 2020/C/25) that sets forth the Belgian tax administration’s position regarding certain transfer pricing issues, stemming from ongoing BEPS developments.

During the last 12-24 months, 75% of attendees at the KPMG Transfer Pricing update sessions responded that they already had specific discussions on one of the topics mentioned in the transfer pricing circular letter with either their tax advisors and/or the tax authorities.

During the last 12-24 months you had discussions on one of the topics in the transfer pricing circular letter with:
Transfer Pricing discussions

It will be essential for taxpayers to review their existing intercompany pricing/financing policies, to assess whether they are still in line with the new guidance from the OECD and the Belgian tax administration.

Transfer pricing documentation

In Belgium, in line with the guidance provided by the OECD in Action Point 13 of its BEPS reports, the federal government has introduced the transfer pricing documentation requirements (through the Program Law of 1 July 2016 and the related Royal Decree dated 28 October 2016). This indicates a significant shift. Belgium has moved from an era where no transfer pricing documentation was required (unless requested in the context of a tax audit) to a formal transfer pricing documentation obligation which includes the electronic filing of all the documentation to be prepared. Finally, the Belgian special transfer pricing audit squad now also has access to the Transfer Pricing forms filed on the IT-platform.

Although the Belgian Transfer Pricing documentation requirements are not new, not all attendees of the KPMG Transfer Pricing updates are convinced that the current requirements are a good tool for documentation and control. A small minority believes that the current requirements are either too broad, time-consuming or should be replaced by other Transfer Pricing documentation requirements. 

Current Transfer Pricing documentation requirements:
Transfer Pricing documentation requirements

Transfer pricing audits

Every year, the Belgian tax authorities invest more time and people in Transfer Pricing audits. Tax audits are increasingly a normal by-product of doing business. Belgian tax authorities have decided to take the tax audits of multinational groups to the next level. From now on, Belgian tax inspectors will mainly focus on transfer pricing and complex international tax issues (resulting from, among others, the implementation of the Anti-Tax Avoidance Directive, “ATAD”).

No company is guaranteed not to be a part of a tax audit wave relating to transfer pricing in the upcoming years. In the last 24 months, almost 50% of the attendees at the Transfer Pricing update sessions have been subject to a transfer pricing audit.

Was your company in the last 24 months subject to a transfer pricing audit?
Transfer Pricing Audit

R&D tax incentives & transfer pricing

Belgium has been a prime location for companies involved in R&D activities for years, supported by a comprehensive set of tax incentives. With the new Innovation Income Deduction (IID), the tax friendly climate for R&D will continue to be available for companies. Besides the development of patents, innovative software solutions and process innovation may also unlock new tax opportunities.

Bringing together the expertise of different departments (e.g. R&D, HR, Finance, among others) may sometimes be a hurdle for companies to identify applicable tax incentives for R&D. Documentation, quantification and obtaining the required certificates may also constitute a barrier to effectively claim the benefits. For example, upon determining the IID, transfer pricing methods are used in the economic analysis.

Based on the input received from the attendees during the seminars, more than 50% benefit from one or more of the Belgian R&D tax incentives.

Do you apply one of the tax incentives on R&D within your company?
Transfer Pricing Research and developments

If your company is an innovator and investing in R&D, make sure you do not miss out on any of the tax breaks, including:

  • reduced effective tax rate for innovation income through the Innovation Income Deduction
  • Patent Income Deduction grandfathered until 30 June 2021
  • reduced cost of R&D personnel
  • deduction for investments in patents and R&D assets
  • tax exemption of regional subsidies.

 

For more information, please contact one of KPMG Belgium’s Transfer Pricing Partners.

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