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Belgium: Final version, circular letter on transfer pricing

Belgium: Circular letter on transfer pricing

The Belgian tax administration on 25 February 2020 published the final version of guidance (circular letter 2020/C/25) that sets forth the Belgian tax administration’s position regarding certain transfer pricing items stemming from ongoing base erosion and profit shifting (BEPS) developments.


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Alignment with 2017 edition of OECD Transfer Pricing Guidelines

Circular letter 2020/C/25 (French) [PDF 728 KB] is generally aligned with the OECD Transfer Pricing Guidelines (2017), and aims at adopting and addressing some of the recently introduced OECD concepts for purposes of the Belgian transfer pricing rules.

With regard to the determination of transfer prices, the circular letter formally clarifies that existing contracts are to be viewed as the “starting point.” However, if the outcome of the functional analysis of the transaction deviates from the terms of the contract, the behavior of the parties involved in the transaction predominates and takes precedence over the contractual provisions (these will be ignored by the Belgian tax administration). The importance of each risk-taking party having control over those risks, and having the financial capacity to bear these risks, have also been highlighted.

In discussing the transfer pricing methods, some points discussed in greater detail include:

  • Use of budgeted costs vs. actual costs
  • Calculation of the cost base and the treatment of pass-through costs (i.e., costs with an advance nature)
  • Use of Belgian accounting standards vs. other accounting standards
  • Calculation of net margins and the effect of the non-recurring costs and revenues

The chapter of the circular letter discussing the comparability analysis mentions that an update of the original comparability analysis must be conducted every three years—in line with OECD Transfer Pricing Guidance. When testing the arm’s length nature of a transaction, the result of the tested party will be accepted when the result of the tested transaction falls within the interquartile range. The draft version of the circular letter—read TaxNewsFlashmentioned that when the result of the tested transaction falls outside the interquartile range, the tax administration could make adjustments towards the median of the range. This wording has been slightly changed in the final version of the circular letter.

With regard to the hard-to-value intangibles, the circular letter confirms a number of positions that are aligned with the OECD report on the application of the approach to hard-to-value intangibles and the transactional profit split method under Action 8 and Action 10, respectively, of the BEPS project (published 21 June 2018). Read TaxNewsFlash. For example, it is assumed that there is always an information asymmetry between the taxpayer and the tax authorities. For this reason, the Belgian tax administration may consider ex post outcomes as presumptive evidence of the appropriateness of ex-ante pricing arrangements. A paragraph in the draft version of the circular letter stating that this principle would only be applied by the tax administration on controlled transactions involving hard-to-value intangibles that have taken place on or after 5 October 2015 has been deleted in the final version of the circular letter.

For low value-adding services, a simplified approach may be applied for the determination of arm’s length charges. If an activity qualifies for the simplified approach, a mark-up of 5% of the relevant cost base may be applied. 

On business restructurings, a number of principles with respect to the termination or substantial renegotiation of existing arrangements are discussed in the circular letter. In this respect, one question that arises is whether the restructured entity would be entitled to a compensation under arm’s length conditions.

Finally, the circular letter refers to the “authorized OECD approach” with respect to the attribution of profits to permanent establishments. In this regard, a distinction is made between income tax treaties based on the OECD Model Conventions before 2010, and those from 2010 onwards. This section has been shortened considerably compared to the 2018 draft version of the circular letter.

Guidance on intercompany financing

The circular letter also includes additional guidance on intercompany financing, having adopted various concepts from the recently finalized OECD report (released 11 February 2020) on the transfer pricing aspects of intercompany financing. Read TaxNewsFlash

Specific positions related to intercompany financing discussed in the circular letter include: 

  • A company of a multinational group would not require any payment for “implicit support” (i.e., the benefit of a better credit rating that may arise from being part of a multinational group).
  • Preference for the “yield approach” when determining the compensation for the guarantees.
  • Deposits or borrowings that remain for a period longer than 12 months will be re-characterized as short-term loans. The wording applied is softer in the final circular letter that in the draft version of the circular letter. The draft circular letter made reference to an automatic requalification of a deposit into a loan after a six-month period.
  • All cash pool participants are considered to have the same credit rating.
  • Cash pool leaders acting as administrators to the cash pool are not to be remunerated more than a market-based service fee, which would be typically determined based on a cost-based approach.

Effective date

With regard to the effective date, the circular letter foresees two dates. Depending on the paragraphs involved, the effective date will be for transactions as from 1 January 2018 or for transactions as from 1 January 2020.

Transfer pricing rulings obtained remain valid.

KPMG observation

The final version of the circular letter provides some interesting insights on the Belgian tax administration’s positions regarding various transfer pricing topics, which are expected to form the basis for various discussions during transfer pricing audits. In general, the Belgian tax administration continues to be broadly aligned with the OECD Transfer Pricing Guidance, which now has been adapted to the Belgian context.

The circular letter explicitly mentions that it adopts all the principles included in the OECD final report on transfer pricing aspects of intercompany financing (February 2020), and this OECD final report includes a significant number of far-reaching new statements that might affect current transfer pricing policies. It will therefore be essential for taxpayers to review their existing intercompany financing policies, to assess whether they are still in line with the new guidance from the OECD and the Belgian tax administration.

This information is also available in a February 2020 report prepared by the KPMG member firm in Belgium.


For more information, contact a tax professional in Belgium with KPMG’s Global Transfer Pricing Services group:

Dirk Van Stappen | +32 3 821 19 18 |

Yves de Groote | +32 2 708 44 34 |

Andres Delanoy | +32 9 241 88 20 |

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