By Bram Markey (Director, Transfer Pricing, PwC Belgium)
The Belgian tax authorities are increasing their manpower, shifting focus areas, and stepping up national and international cooperation with other tax authorities, with a clear view to audit transfer pricing and other international tax matters in a more targeted and efficient way, writes Bram Markey, Director, Transfer Pricing at PwC Belgium.
In February 2018, the Belgian tax authorities will initiate a new wave of several hundred transfer pricing audits. The selection, approach, and criteria used to conduct an audit will continue to be based on risk profiling and datamining (based on criteria such as volatility of turnover/profit, loss making activities, high debt ratios, etc.). It is expected that the selection process will change starting next year, when the Belgian tax authorities will have access to additional information such as country-by-country reporting data, the “master” file and the “local” file/specific Belgian Local Form.
The Belgian tax authorities have made significant investments in additional manpower as well as enhanced processes to handle more effectively and efficiently the information received in collaboration with other tax departments. In this regard, the specialised Transfer Pricing Unit will be hiring 15 additional personnel, thus raising the headcount of the central department to over 40 full time equivalents (FTEs).
Furthermore, the Transfer Pricing Unit has enhanced its cooperation with the Large Companies Department. Over 200 field inspectors of the Large Companies Department received intensive training from the Transfer Pricing Unit, specifically focused on new international tax developments, primarily with respect to transfer pricing, as well as audit techniques to identify transfer pricing risks. The Large Companies Department will dedicate a significant number of FTEs to focus on transfer pricing and certain other international tax issues as part of its regular investigations. These teams will be assisted by the Transfer Pricing Unit for technical support.
The Transfer Pricing Unit will also cooperate more closely with the Special Tax Inspectorate (referred to as the BBI/ISI). The Transfer Pricing Unit and the BBI/ISI have concluded a protocol under which the BBI/ISI may involve specialists from the Transfer Pricing Unit when presented with transfer pricing issues during inspections – resulting in real time exchange of best practices and audit techniques. And while the Belgian tax authorities have not initiated a significant number of joint/multilateral audits compared to other countries thus far, they will increasingly engage in joint/multilateral transfer pricing audits.
The expected focus areas for the new wave of transfer pricing audits are inspired by recent international tax developments, including the revised OECD transfer pricing guidelines following the BEPS project. These areas include, but are not limited to hybrid mismatches, exit taxation, anti-abuse regulations, artificial avoidance of permanent establishments, and base erosion involving interest deduction. Specific to transfer pricing audits, the Belgian tax authorities have indicated that more scrutiny will be paid to intangibles, financing, procurement, and (captive) re-insurance.