The beginning of the year usually marks the start of the work plan of the transfer pricing Unit, which consists of an international tax team and a transfer pricing team.
This national team, which specialises in transfer pricing audits, is steadily growing, as such audits remain one of the objectives of the tax authorities.
The year 2022 is no exception and the tax authorities continues to expand the Transfer Pricing Unit. Thus, the administration has provided 35 new posts for employees of different experience levels. Most of these posts are for senior profiles with a certain amount of experience. This shows once again the increasing importance that the Belgian tax authorities attach to transfer pricing.
Amendments to the audit procedure
Pre-audit meeting no longer optional
Until now, each transfer pricing audit started with the sending of a standardised questionnaire with some 30 questions. This questionnaire was issued annually and was adapted from time to time to take account of new developments in transfer pricing. In addition, the taxpayer was offered an (optional) pre-audit meeting.
From 2022 onwards, the tax administration changes its approach significantly. First of all, tax inspectors will from now on send a request for a pre-audit meeting, at the occasion of which they inform the taxpayer of an upcoming tax audit. The pre-audit meeting will therefore no longer be optional.
The model form that the administration sends (the request for a pre-audit) is currently still under development.
Please note that the pre-audit meeting is not a mere formality and is best prepared precisely. After all, such a pre-audit meeting can have a major impact on the entire audit that follows. The level of detail of the information provided during the pre-audit also has an impact on the amount of information that will be requested by the administration afterwards. The clearer the information provided during the pre-audit, the easier it is for the administration to request the appropriate information. This allows the taxpayer to avoid very extensive and in some cases irrelevant standard questions.
Following the pre-audit meeting, the taxpayer receives a personalised questionnaire (personalised transfer pricing questionnaire to answer (personalised transfer pricing questionnaire). It is likely that the standard questionnaire used so far will be used as a basis for drafting the personalised questionnaire.
According to the current planning, the tax administration is expecting to send the pre-audit requests to the relevant taxpaying companies by the end of February 2022.
As with the old procedure, it is to be expected that transfer pricing audits will continue to take a long time (on average 18 months under the old procedure). Transfer pricing audits are very time-consuming and require an in-depth analysis of the analytical figures of the company (i.e. the breakdown into 'Business Units').
Because the tax consequences can be considerable and because of the technical nature of the matter, careful preparation is strongly recommended.
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. Although this usually takes some time, there are procedures to avoid double taxation (based on a bilateral tax treaty or on the Arbitration Convention at European level).
It can therefore be concluded that the risks are more significant than ever.
BDO Transfer Pricing team
The BDO Transfer Pricing team has the experience and knowledge to support the company undergoing such a tax audit through the following services:
- Identification of risks by means of a preventive analysis in the pre-audit and a risk analysis (in the absence of the administration);
- Guidance from the early stages of the audit (pre-audit meeting, exchanges and meetings with the administration, etc.)
- Support during any final negotiations with the administration;
- Implementation and monitoring of control.
We recommend opting for direct support, starting with the pre-audit meeting, during which a considerable flow of information will already be available to the tax administration.
If you have any questions or would like assistance from one of our experts, please do not hesitate to contact the BDO Transfer Pricing team.