• MANDATORY TRANSFER PRICING DOCUMENTATION AS A RESULT OF THE BASE EROSION PROFIT SHIFTING ACTION PLAN?

MANDATORY TRANSFER PRICING DOCUMENTATION AS A RESULT OF THE BASE EROSION PROFIT SHIFTING ACTION PLAN?

19 March 2015

Following a parliamentary question of 11 March 2015 with respect to “transfer pricing audits” (CRIV 54 COM 11 – Question nr. 2774), the Belgian Minister of Finance provided some new insights on the envisaged transfer pricing policy of the Belgian government.

A first insight that was shared by the Minister of Finance concerns the plans of the Belgian government todownsize the application of the catch-all and the general anti-abuse provision. The intention is to limit the application of the catch-all provision to its original purpose. The anti-abuse provision would be revised accordingly in order to provide more legal certainty to the tax payers. Both provisions will, however, be further discussed by the government. Therefore no other comments were provided yet.

A second proposal relates to the introduction of a transfer pricing documentation requirement in Belgian tax law. As part of the OECD/G20 BEPS project (“Base Erosion and Profit Shifting”), important new recommendations have recently been issued on this topic. The aim of these recommendations is to enhance the efficiency of transfer pricing audits and to increase legal certainty. As the introduction of a transfer documentation requirement in Belgium could significantly increase the transparency of multinational’s global operations, the Belgian government clearly expressed it will support the OECD recommendations on transfer pricing documentation requirements, provided that it will be implemented in a balanced way with a clear settlement of the burden of proof. However, the Minister of Finance explained that the government will wait for the results of a benchmark and feasibility study first foreseen in the operational plan of 2015 of the “Algemene Administratie Fiscaliteit” (“AAF”) before taking any measures in this respect.

A third proposal (which was further explained in a complementary note to the policy division) relates to thepossible extension of the three years investigation and assessment period for transfer pricing adjustments and the introduction of new transfer pricing penalties.

However, throughout the discussions reference was made to the OECD Guidelines, which emphasise that transfer pricing is not an exact science meaning that transfer pricing in practice is about identifying an arm’s length price range instead of focusing on a “unique and correct market price”. Since most transfer pricing disputes originate from a different appreciation of the facts and the applied transfer pricing methods and thus principally cannot be considered to constitute “fiscal fraud”, a more limited time frame of three years should be applicable (instead of the proposed 7 years period applicable to fiscal fraud). The proposal also ignores the five years investigation and assessment periods provided by article 358 of the Belgian Income Tax Code (“BITC”).

Some practical problems related to the application of the current three year investigation and assessment period to transfer pricing adjustments have been recognised however (for example in the case of information requests by foreign tax authorities in the context of international tax cooperation). Therefore, it has been proposed to extend the application of article 358 of the BITC to transfer pricing adjustments and information requests by foreign tax authorities. Importantly, no indications of tax evasion will be required in the context of transfer pricing adjustments and information requests.

It has been further been noted that the minimum tax increase of 10% is often not applied in practice, based on the understanding of the fact that transfer pricing disputes often result from a different appreciation of the facts and the applied transfer pricing methods
As a final remark, the Belgian Minister of Finance briefly discussed the evolution of the specialized transfer pricing unit. The number of full time employees has increased from 10.5 to 14.5 between 2012 and 2014, and will be further increased by improving internal mobility and specialized trainings offerings.

Contact

Should you have any questions regarding this topic or require assistance, please feel free to contact the BDO Transfer Pricing Team: