Belgian Transfer Pricing Circular sets out tax authority’s view on 2017 OECD Guidelines

View of Belgian Tax Administration on 2017 OECD Guidelines and specific positions

By Géry Bombeke (Partner, Baker McKenzie, Brussels)

On February 25, 2020, the Belgian Tax Administration published a new transfer pricing Circular (Circular 2020/C/35) (TP Circular) summarizing the post-base erosion and profit shifting (BEPS), OECD Transfer Pricing Guidelines and reflecting the tax authority’s views thereon.

While the Transfer Pricing Circular was originally intended to apply to all past, inter-company transactions and internal dealings, the Circular now explicitly states to apply as of January 1, 2018, except for certain specific sections only being applicable as of January 1, 2020 (such as the part on financial transactions).

In the Transfer Pricing Circular, the tax authority clearly supports the OECD views and the tax authority will, in principle, also accept later changes to the OECD Transfer Pricing Guidelines. This article notes below the most noteworthy views expressed by the tax authority.

The positive impact of subsidies on the tested party’s result can for transactional net margin method (TNMM) purposes be taken into account (i.e. decrease the inter-company remuneration) if there is a direct link between the subsidy and the production of the goods or delivery of services. Payroll tax exemptions/reductions are given as an example of such subsidy.

Regarding both central procurement and cash pooling within multinational groups, the tax authority is of the view that the profit related to group synergies realized as a result thereof belongs to the group members and that the central procurement/cash pool entity is only entitled to a cost based remuneration unless a higher functional profile can be demonstrated.

Under the cost plus method (and cost based TNMM), higher costs incurred as a result of inefficiencies are to be borne by the enterprise which delivers the goods or services.

When budgeted costs are used as a basis for setting transfer prices, the tax authority will follow up on deviations between budgeted and actual costs and may proceed with transfer pricing adjustments on the basis thereof.

Because of the so-called information imbalance between taxpayer and tax administration with respect to hard-to-value intangibles, the tax authority uses ex-post data to assess the reliability of an ex-ante price setting and the parameters used therefor. This approach will, however, not be applied if sufficient reliable information about the ex-ante valuation is provided, the transaction is covered by a ruling or any valuation difference is limited to 20 percent (during a five year period).

The results of the tested party must be arm’s length on a year-by-year basis and the tax authority does in principle not accept that the arm’s length test is performed over a longer period.

Specific arguments seem to be required to enlarge the set of comparables from mere Belgian comparables to a pan-European set.

Any transaction outside the inter-quartile range needs to be adjusted to the median unless specific arguments can be brought forward for any other point in the range.

While an earlier draft of the Transfer Pricing Circular stipulated that the impact of a new loan to be granted needs to be taken into consideration to determine the credit rating for the pricing of the loan, the tax authority has surprisingly deleted this statement in its final Circular.

Cash pool positions seem to be only accepted up to 12 months after which they can no longer be considered as short term deposits but should be treated as inter-company loans (with a higher interest remuneration). No reference is made to possible treatment as long term deposits.

Finally, the Authorised OECD Approach regarding profit allocation to permanent establishments is accepted but only under tax treaties, which contain the new (2010) version of Article 7 of the OECD Model Convention and the Belgium-US tax treaty.

View of Belgian Tax Administration on 2017 OECD Guidelines and specific positions - TP Circular


The author is a partner in the Tax Practice Group of the Brussels office.