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Base Erosion and Profit Shifting

Base Erosion and Profit Shifting

Understanding BEPS and its impact on your business.

Understanding BEPS and its impact on your business.

How to manage the new extensive Belgian transfer pricing documentation filing requirements, knowing that they will serve as a basis for the selection of transfer pricing audits?

The Challenge

In October 2015, the Organization for Economic Co-operation and Development (OECD) released 14 final reports in relation to the 15 Base Erosion and Profit Shifting (BEPS) action points tackled in the 2013 BEPS action plan. European governments have all expressed their commitment to end BEPS and are eager to help shape and refine the plan. Now that the final reports have been issued, federal governments are making changes to their tax codes in order to be aligned with the new recommendations and regulations.

In Belgium, in line with the guidance provided by the OECD in Action Point 13 of its Base Erosion and Profit Shifting (BEPS) reports, the federal government 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 is moving 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.

Starting from FY 2016, Belgium has introduced transfer pricing requirements for filing a Master File and a Local File for each Belgian subsidiary or permanent establishment (of a multinational group) that exceeds one of the following thresholds, to be assessed on the basis of the stand-alone financial statements of the Belgian entity concerned for the preceding financial year.

  • A sum of operational and financial income of EUR 50 million (excluding non-recurring income);
  • A balance sheet total of EUR 1 billion; or
  • An annual average of FTEs of 100.

All related documents (including the Law, Royal Decree and individual Forms to be filed), as well as additional guidance, have been posted by the Belgian tax authorities on the following website:

Moreover, the Belgian tax authorities have decided to take the tax audits of multinational groups to the next level. From now on, the 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”).

Recent transfer pricing documentation requirements flooding Belgian tax authorities with information

As the Belgian tax authorities are flooded with transfer pricing information and documentation following the rather recent requirement for qualifying taxpayers to file a Master File, a Local File (Form), and Country-by-Country Reports (and notifications), they have decided to invest considerably in manpower to review all these documents (hereby assisted by software tools) and to perform audits on the detected issues. In doing so, a three-layered approach will be followed.

Three-layered approach

First of all, the Special Transfer Pricing Audit Department will increase its number of transfer pricing inspectors from 27 to 42.

Secondly, in enhancing cooperation with the Large Companies Department, the specialists of the Special Transfer Pricing Audit Department will organize transfer pricing trainings for the audit centres of the Large Companies Department. To date, full-week trainings have already been conducted twice, and this training program will continue. In total, more than 200 people from the Large Companies Department (of which more than 100 are inspectors) will be trained. Each of the 20 teams of the Large Companies Department will be assigned a number of (multinational) groups of companies that will be subject to a thorough transfer pricing and international tax audit. During these audits, the teams of the Large Companies Department will be assisted and supported by the specialists of the Special Transfer Pricing Audit Department. Consequently, the teams of the Large Companies Department of the Belgian tax authorities will focus on transfer pricing and international tax issues when auditing large groups and companies.

In addition, the Special Investigation Squad (Bijzondere Belastinginspectie - BBI/Inspection Spéciale des Impôts – ISI) has concluded a protocol with the Special Transfer Pricing Audit Department, whereby BBI/ISI will also focus more on transfer pricing issues, hereby coordinating and liaising with the Special Transfer Pricing Audit Department.

Given the fact that the Belgium is taking a strict approach while other countries are not, what should multinational corporations based on Belgium do to balance their approach? How can it maintain tax efficiency without running afoul of tax authorities in Belgium and abroad with this new reality? How should I complete my filing requirements in a clear way to avoid transfer pricing audits?


KPMG Approach

The transfer pricing documentation structure proposed by the OECD has been adopted by Belgium, i.e. three layers of documentation which have each a specific purpose:

  • Country by Country Reporting
  • Master File
  • Local File

Taken together, these three documents require taxpayers to articulate consistent transfer pricing positions.

The three reports (to be compiled in specific Form formats) will, where applicable, have to be filed annually and will need to be filed electronically. An electronic platform has been foreseen for the filing.

KPMG can help Tax Directors fulfill these new requirements and manage the process flows associated to them. 

Moreover, in case a transfer pricing audit would be initiated by the Belgian tax authorities based on the information included in the files submitted, KPMG has an experienced team to assist you during this process.

The Benefits

With adequate preparation multinational corporations based in or with significant operations in Belgium, will be able to adapt to the new tax landscape, without suffering unwarranted disruptions in business operations or incurring excessive tax costs during the transition, whilst preserving their reputation.

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