Transfer pricing audits: be prepared!
14 January 2021
The beginning of the year usually also marks the start of the work plan of the Federal Public Service Finance's Transfer Pricing Unit. This national team, which specialises in transfer pricing controls, is constantly being strengthened, as the performance of transfer pricing audits remains one of the tax administration's objectives.
Tax audits that require a lot of preparation
Prior to a tax inspection, you will receive a request for information. This is a standardised questionnaire of about 30 questions. This questionnaire is regularly updated. The questionnaire for the year 2021 contains some new questions:
- Request for information on the DEMPE functions (development, enhancement, maintenance, protection, exploitation)
- Request for the internal annual accounts
- Request for various information regarding the acquisition of fixed assets.
Through this questionnaire, the taxpayer is asked to collect a great deal of information. However, a pre-audit meeting may be requested with the Administration to delineate the scope of this questionnaire. Although it is suggested as an option in the questionnaire, it is strongly recommended that this meeting takes place before the information requested by the Administration is sent.
Transfer pricing audits are also characterised by their long duration, with an average duration of 18 months. They are very cumbersome and require an in-depth review of the company's analytical figures (in particular the breakdown into 'Business Units').
The BDO Transfer Pricing team has the necessary experience and knowledge to support the company that is undergoing such an audit through the following services:
- Identification of risks by means of a preventive pre-audit analysis (in the absence of the administration)
- Guidance during the initial stages of the audit (pre-audit, information exchange and meetings with the administration, etc.)
- Guidance during any final negotiations with the administration
- Implementation and monitoring of control.
Corrections following a tax audit
With regard to the possible corrections that the administration could impose in the context of such an audit, we would like to remind you once again that, since the corporate tax reform, tax deductions can no longer be granted on tax supplements that are established following a tax audit. This means that an adjustment will automatically result in a 'cash-out' for the company concerned, against which, moreover, no tax deductions can be offset.
Moreover, Belgian legislation provides for adjustments in the case of the granting of abnormal or gratuitous advantages, but also, and this is very special, in certain cases of received abnormal or gratuitous advantages. Indeed, tax deductions cannot be offset against the part of the profit constituted by such an advantage when it derives from an undertaking with which a relationship of interdependence exists. Belgium thus corrects the situation, even if it is a Belgian entity that is 'favoured', which is rather rare at the international level.
Finally, these adjustments sometimes result in economic double taxation of the same income for two related entities in two different states.
As a result, the risks are greater than ever.
If you have any questions regarding this topic or if you require assistance from our experts, please do not hesitate to contact the BDO Transfer Pricing team: