The Belgian Minister of Finance has just shared new insights on how Belgium will be addressing the outcome of the OECD/G20 project in relation to Base Erosion and Profit Shifting (“BEPS”). He opted to do so via the “Plan to combat tax fraud”. The title of his policy note is misleading since the document covers, besides fiscal fraud, more mainstream tax themes such as permanent establishments and transfer pricing.
A plea for coordinated actions in sync with global, OECD and EU initiatives as opposed to unilateral measures is a recurring theme that glimmers through the entire policy document. A significant part of the note is related to measures that will affect companies and multinationals. The plan, however, equally touches on indirect taxation, personal taxation, social security and procedural matters. A lot of insights are also given on how the tax authorities will increase and enhance audit processes through data mining, exchange of information and additional manpower.
The most noteworthy items – inspired by BEPS – from the 77-page policy note are summarized below.
- The OECD Country-by-Country (“CbC”) reporting initiative is fully endorsed by Belgium and will be implemented into local legislation. The threshold of EUR 750 million consolidated turnover for completing and filing is expected to be maintained.
- Formal transfer pricing documentation and reporting requirements will likely be introduced. A separate annex to be filed together with the corporate income tax return would be the preferred method. The materiality threshold for reporting intercompany transactions would be set at EUR 500,000 in order to strike a balance between having sufficient information to perform risk assessments and the compliance burden for companies.
- The revised OECD transfer pricing guidelines (resulting from the final OECD report on BEPS Action Points 8, 9 and 10 and which are in the process of being drafted) will be used as the reference framework for the Belgian transfer pricing investigations and ruling/APA practice.
- Belgium is supportive of implementing changes to the double tax treaties via the multilateral instrument through a coordinated approach.
- A revised/new Belgian administrative circular letter on the definition of a “dependent agent” permanent establishment is mentioned as useful and desirable in view of the outcome of BEPS Action Point 7 and the new OECD commentaries on permanent establishments. Noteworthy is that the OECD work on Action 7 is not expected to be completed until fall 2016.
- An interest/EBITDA ratio will likely be introduced on top of the 5:1 debt/equity ratio to limit the deductibility of so-called excessive interest payments. Belgium is supporting and awaiting a coordinated initiative at EU level in this respect.
- Introduction of CFC legislation is not envisaged at this stage, but the impact of transactions with entities in a low-taxed or non-taxed jurisdiction will be further monitored.
- Belgium will fully support the measures in terms of international exchange of information and exchange of tax rulings. The Minister highlighted that Belgium is a frontrunner in this area and is already spontaneously exchanging information with other countries on its unilateral cross-border rulings (APAs) which have been concluded since 1 January 2015.
- Belgium is committed to implement the minimum standard for international dispute resolution as put forward by the OECD under Action Point 14. The Minister puts a 24-month timeframe as target for resolving Mutual Agreement Procedures and EU Arbitration Convention Procedures.
Companies with activities in Belgium should start preparing themselves for multiple transparency and reporting requirements that will be introduced over the next few months. It is recommended to already start putting the necessary processes in place to collect and produce CbC data and test whether systems are adequately equipped to handle or automate CbC reporting. A dry-run on FY2014 and FY2015 financial data can also yield interesting insights on potential sensitive areas of the “CbC selfie”.
Given the increased scrutiny, it is also imperative to check the consistency of transfer pricing arrangements with actual conduct and to analyse/document the tax treatment of business restructurings involving Belgian operations.