• Are you ready for a transfer pricing audit?

Are you ready for a transfer pricing audit?

22 March 2018

In line with previous years, the Belgian transfer pricing audit cell (which is a national team specialized in transfer pricing audits) recently issued  a request for information regarding transfer pricing to certain companies.

This year, they applied a different approach as they selected 50 company groups, of which some entities will be audited by the transfer pricing audit cell and other entities of the same group will be audited by the local 'Centrum GO Beheer en Gespecialiseerde Controles'.

Information on other Belgian group entities

During this tax audit, the tax inspector may also ask questions about other Belgian group entities belonging to the same group without issuing a separate request for information.

Apart from these requests for information, the transfer pricing audit cell will also proceed with selecting files for transfer pricing audits and/or assisting tax inspectors performing corporate tax audits with potential transfer pricing issues.


Changes compared to last year

In the questionnaire, the following changes could be noted compared to last year:

  1. In case you apply  for a pre-audit meeting, the response time for the tax authorities is now 10 instead of 20 days.
  2. The request for information provides an overview of the other group entities that will be audited with reference to which entity will be audited by the “Centrum GO Beheer en Gespecialiseerde Controles” and which entity by the transfer pricing audit cell.
  3. Question 3 - An additional question has been included: 'Do the Belgian entities have one of more permanent establishments for VAT purposes?'
  4. Question 6 - An additional question has been included in which the tax authorities require a description of triangular transactions performed for VAT purposes.
  5. Question 8.b. – Beside the required financial information about the sales, the gross margin, and EBIT, the cost of goods sold and operational cost now also need to be mentioned.
  6. Question 21 – The entity responsible for central purchases/procurement needs to be mentioned. Its working methods need to be described and documented with the underlying contracts.
  7. Question 26 – Is an inquiry about which entity is responsible for factoring. Working methods need to be described and documented with the underlying contracts.
  8. With respect to question XI Transfer pricing documentation: if your company has to comply with the transfer pricing formalities set out in the Programme law of 1/7/2016 (BS 4/7/2016), the tax authorities allow that reference is made to the formal transfer pricing documentation (Country-by-Country reporting, Masterfile and Local File).


The number of transfer pricing inspectors is gradually increasing

Finally, we have been told that the number of transfer pricing inspectors will significantly increase and also the “BBI” has announced they will focus more intensively on transfer pricing.

Since 2004 the transfer pricing audit cell has expanded from 3 to 27 inspectors in 2017. In addition, numerous inspectors in some of the local ‘Centra GO’ will spend 100% of their time working on transfer pricing audits.

The files are often selected by the ‘MANTRA’ software, which is a risk analysis software, developed by the tax authorities.

Please be aware that that even companies, which on the basis of the Local File, the Master File or the Country-by-Country report do not meet the criteria with respect to the size of the company may nevertheless regularly expect a transfer pricing audit.


Transfer pricing audits involve long procedures

Please note that a transfer pricing audit involves a relatively long process (+/- 18 months) and often evolves into negotiations leading to a settlement.

Most transfer pricing adjustments entail economic double taxation: the same revenue is taxed with two companies of the same group, often located in different countries. International instruments that counter double taxation (e.g. arbitration procedures included in international conventions, or the Arbitration Convention in intra-European context) often bring on long and costly procedures. There is also, apart from the context of the Arbitration Convention, no guarantee whatsoever that the Member States are able to eliminate the double taxation.

The transfer pricing audit cell, as well as the local transfer pricing tax inspectors have an in-depth knowledge of the transfer pricing regulations and are quite often lecturing at international conferences.

The model of request for information (NL / FR) provides an overview of the information that will be asked for in case your company is selected for a transfer pricing audit.

Are you ready for a transfer pricing audit?



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