The formal introduction of transfer pricing (TP) regulations into Belgian legislation began in 1999. Since then, a few regulations and circulars regarding TP have been introduced. This resulted in the rise of the importance of TP for the Belgian Tax Authority (BTA), which led to increased number or TP audits in the country.
The main amendments began with the Program Law of July 2016, which introduced formal TP documentation requirements and was supported by subsequent Royal Decrees and circular letters. Currently, the transfer pricing rules are governed by the Belgian Income Tax Code (BITC) – Articles 26, 49, 54-56, 79, 185§2, 206, 321/4 §4, 321/2 §5, 321/5 §4 and 344.
The Belgium TP rules largely follow the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (The OECD TP guidelines).
Arm’s Length Principle
The arm’s length principle, based on Article 9 of the OECD Model Treaty, was first included in Belgian law through Article 26 of the BITC and served as a key tool for the BTA in handling transfer pricing cases. However, since the introduction of Article 185 §2 of the BITC, which directly incorporates the arm’s length principle into Belgian law, the use of Article 26 has become less frequent.
Article 185, Section 2 of the BITC allows for a unilateral adjustment of a company’s taxable basis, both upwards and downwards:
Upward Adjustment: If two companies set terms in their commercial or financial dealings that differ from those between independent companies, the profits one company would have made without such terms can be added to its taxable profits.
Downward Adjustment: If a company’s profits include amounts already taxed as profits in another affiliated company, and those amounts reflect what the second company would have earned under independent terms, the first company’s taxable profits can be revised downward appropriately.
Related Party Definition
In Belgium, the term “related parties” for transfer pricing purposes is not explicitly defined in the legislation. However, the Belgian Tax Authorities consider parties to be related if one entity participates directly or indirectly in the management, control, or capital of another, or if a third party participates in the management, control, or capital of both entities.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Belgium are:
- Comparable uncontrolled price method
- Resale price method
- Cost plus method
- Transactional net margin method
- Profit split method
Belgium does not have a preferred method, rather the choice is dependent on the method that is most appropriate to the case, and in accordance with the arm’s length principle.
Comparability Analysis
An important part of the transfer pricing compliance is the comparability analysis. Below is a summary of the main points regarding comparability analysis in Belgium:
While Belgium’s policy on comparability analysis aligns with the OECD Transfer Pricing Guidelines, it does not prioritize internal comparables over external ones. Belgium typically relies on external databases such as Amadeus and Belfirst to identify suitable comparables for transfer pricing purposes.
Comparability analysis for transfer pricing considers several key factors to ensure transactions align with the arm’s length principle. These include the terms of contracts between related parties, the functions performed, assets used, and risks assumed by each party (functional analysis), and the economic circumstances such as market conditions and geographic location. Business strategies, like market penetration or innovation policies, are also taken into account. The analysis often uses statistical tools like the interquartile range to determine fair pricing and multi-year data is considered to account for variations over time.
Documentation Requirements
Since January 1, 2016, transfer pricing documentation requirements in Belgium are based on the three-tiered approach set forth by the OECD. This requires multinational groups to submit the following documentation to the Belgian tax authorities:
- Master file;
- Local file; and
- Country-by-Country (CbC) report.
Belgian entities of a multinational group must submit a master file and a local file if their accounts from the previous accounting period exceed certain thresholds:
- operational and financial revenue of at least 50 million euros;
- balance sheet total of 1 billion euros; or
- annual average number of employees of 100 full-time equivalents.
The local file should be filed with the tax return covering the accounting year it applies to. The master file should be filed within 12 months of the last day of the group’s reporting period.
Country-by-Country Reporting
- The CbC report should be filed by the Belgian parent entity (i.e., ultimate parent) of a multinational group that has a gross consolidated group revenue of at least 750 million euros.
- The CbC report should be filed within 12 months of the last day of the group’s reporting period.
- A Belgian entity can be appointed as a surrogate parent if one of the following situations exist: (i) the ultimate parent is not required to file a CbC report; (ii) there is no automatic exchange of CbC reports between Belgium and the country of residence of the ultimate parent; or (iii) due to a systematic failure no effective exchange of information takes place. A Belgian group entity that is not the ultimate parent may be required to file a CbC report if one of the above-mentioned conditions is met and no surrogate has been appointed.
- The report can be prepared in one of the Belgian official languages or English
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Belgium uses both APA and MAP to manage and resolve international tax disputes, in compliance with OECD guidelines and EU directives.
APAs are agreements made between the taxpayer and the tax authorities, in advance, to avoid tax disputes regarding transfer pricing methodology. The authority regulating the agreements is the Federal Public Service (FPS) Finance, which determines how Belgian tax law will be applied to a specific situation or transaction that has not yet occurred from a tax perspective. Important to note that in Belgium rulings cannot be requested for transactions involving non-OECD-cooperative countries or low/no-tax jurisdictions unless a treaty with information exchange provisions exists.
Under the Belgium law, there are three types of APAs:
Unilateral APA – In Belgium, unilateral APAs are agreements between a taxpayer and the Belgian authority to provide certainty on the application of transfer pricing rules to specific transactions within Belgium. These arrangements focus on domestic compliance and are particularly useful for resolving local transfer pricing issues. Unilateral APAs, however, do not protect against double taxation, as they do not involve the agreement of tax authorities in other jurisdictions.
Bilateral APA – Bilateral APAs involve an agreement between the Belgian competent authority and a counterpart authority in another jurisdiction. These arrangements ensure consistency in transfer pricing practices for cross-border transactions between related entities, helping prevent double taxation. The OECD Model Tax Convention’s Article 25 serves as the basis for these APAs, with Belgium offering clear guidance on procedures, timelines, and required documentation. The process is collaborative, typically taking 24 months for agreements with EU countries and 36 months for non-EU countries.
Multilateral APA – Multilateral APAs expand the scope to include agreements among multiple jurisdictions involved in a multinational group’s transactions. These arrangements provide comprehensive certainty and alignment across all participating countries, addressing complex cases involving global value chains. Belgium has gained experience in concluding multilateral APAs and plans to publish detailed guidelines to facilitate such agreements. These arrangements are particularly effective in mitigating the risks of multi-jurisdictional disputes and ensuring consistent tax treatment across borders.
In Belgium, the Mutual Agreement Procedure (MAP) helps resolve tax disputes, such as double taxation, under Article 25 of the OECD Model Tax Convention. Taxpayers can use MAP alongside domestic remedies, and no fees are charged for requests.
Approach to Transfer Pricing Audits
Transfer pricing audits in Belgium have become more common, with the BTA focusing on areas like intra-group loans, management fees, and profit-sharing within multinational companies. The BTA uses transfer pricing documents like the Master File, Local File, and Country-by-Country Reporting to check compliance. They also rely on data analysis and benchmarking to spot irregularities. Businesses are encouraged to keep detailed and accurate records to avoid penalties, disputes, or adjustments during these audits.
Penalties
Penalties for non-compliance with transfer pricing regulations range from €1,250 to €25,000 for repeated violations. If the non-compliance involves bad faith or tax fraud, an initial penalty of €12,500 may be imposed, increasing to €25,000 for a second offense.
Taxation at a Glance
Belgium is a constitutional monarchy composed of three regions (Brussels, Flanders and Wallonia) and three Communities (Dutch-speaking, French-speaking and German-speaking). The three regions enjoy tax autonomy, which means that they can create and impose their own taxes. However, double taxation (i.e., taxation of the same base both at national and regional level) is prohibited. With the 6th State Reform in full force from January 1, 2015, the regions have been granted large powers in relation to personal income taxation. The regions can impose a surtax on the federal personal income tax, and there is a shift of specific tax reductions to the regions. Corporate income taxation remains entirely a federal tax matter.
The official name of the Belgium’s tax authority is the General Administration of Taxation. The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 25% |
VAT | 21% |
Withholding tax on dividends to non-residents | 30% |
Withholding tax on interest to non-residents | 30% |
Withholding tax on royalties to non-residents | 30% |
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