Publication date: 17/09/2020
The corporate tax and transfer pricing compliance deadline for many Belgian taxpayers is typically toward the end of September (i.e., for companies with financial years ending in December). However, this year, in light of the current coronavirus (COVID-19) pandemic situation, the filing deadline for the Assessment Year 2020 (AY 2020) has been extended until 29 October 2020.
Upcoming filing of Local file
For transfer pricing compliance, companies meeting the thresholds will have to file their Local file (form 275LF) on the MyMinfin platform (in XML), similar to prior years. To clarify various aspects of the transfer pricing filings and requirements, the Belgian tax authorities published additional guidance (Circular (June 2020)) setting out another list of “frequently asked questions” (FAQs) at the end of June 2020.
One of the key points covered in the FAQs is that the Belgian tax authorities expect a comparability and functional analysis performed in line with the Organisation for Economic Co-operation and Development (OECD) Action 13 requirements to be maintained at the time of filing the Local file. Consequently, in order for a taxpayer to indicate that a “transfer pricing study” is available (under Section B10 of the Local file form 275LF), the Local file report (per Action 13)—or at least the key aspects of such documentation, comprising the functional analysis and comparability analysis—must have been prepared.
Prior to the publication of the FAQs, some taxpayers had interpreted “transfer pricing study” to mean the (sole) availability of comparability/benchmarking studies. This is an aspect that taxpayers need to review when completing the Local file form for FY 2019 (AY 2020).
The FAQs also clarify the following:
- As had already been previously clarified, the June 2020 Circular reiterates that the €25,000 threshold for reporting cross-border related-party transactions was only relevant for non-core transactions. All core/recurring transactions that fall below this threshold still need to be reported.
- For intercompany financing transactions, only the interest amounts are considered when assessing the filing threshold of €1 million cross-border transactions, which determines whether a taxpayer is obliged to file Part II of the Local file form (i.e., the actual reporting of the cross-border controlled transactions). This means that there could be certain taxpayers that do not meet the threshold for filing Part II of the form if their key cross-border controlled transactions are intercompany financing transactions—if low interest rates had been applied.
- The Circular also reiterates that for Belgian permanent establishments (PE) of foreign head offices, only the financial/head-count information of the Belgian PE will need to be considered when assessing the thresholds as to whether the transfer pricing compliance requirements have been met. Conversely, for foreign PEs of Belgian head offices, the full legal entity (including the PE) is considered—and the transactions of the foreign PE (e.g., between the foreign PE and other related parties) will also need to be reported in the Local file form in Belgium.
- The FAQs clarify that various transactions under a certain category (e.g., the sale of goods) will need to be summed up and reported in a single line/amount if they belong to the same business unit. This confirms that the purpose of the Local file form is to help the tax authorities assess the transfer pricing risk of a taxpayer—and not necessarily to already review the specific transactional details. Aspects of the Local file form are assessed (by a data mining tool) to help the tax authorities identify transfer pricing audit targets.
- The transfer pricing methods that can be reported in the Local file form are strictly limited to one of the five OECD prescribed methods. While Paragraph 2.9 of the OECD Transfer Pricing Guidelines indicates that taxpayer groups are free to apply methods other than the OECD prescribed methods, this is not an option in the Local file form.
Loss carryback regime and interactions with transfer pricing
As a response to the economic situation resulting from the coronavirus (COVID-19) pandemic, a loss carry-back regime has been introduced in Belgium. The regime stipulates that companies in a taxpaying position in FY 2019, but expecting a loss in FY 2020, may be able to apply the loss carry-back which is intended to allow companies to get a quicker refund of tax prepayments or to pay less taxes for AY 2020.
Consequently, groups that may be considering a review of their transfer pricing policies in FY 2020 will need to consider whether and how the loss carryback regime will affect the Belgian taxable base. Examples include:
- Belgian principals expecting losses as a result of the economic circumstances, and (partially or fully) sheltering the losses of the routine entities—determining the amount of losses which will be borne in Belgium
- Fully-fledged entities in Belgium—determining the amount of losses expected to be incurred in Belgium
- Entities remunerated under a Profit Split model—determining if it would be appropriate for the expected losses, as a result of the economic circumstances, to be split in the same way profits were being split among the parties
- Routine entities in Belgium—considering whether and how the routine profits will be impacted as a result of a review of the transfer pricing policy under the current economic circumstances