The Belgian tax authorities have initiated a new wave of transfer pricing audits, similar to those initiated in 2013 and 2014. Multiple taxpayers have already received or will receive in the next few days an in-depth questionnaire that focuses on their transfer pricing arrangements. The request for information on intercompany transactions and activities of the Belgian company or branch is the formal starting point of an audit that typically takes multiple months to complete given the complexity of the topic and the amounts that are at stake. A team of specialised and skilled tax inspectors deals with these specific investigations.
Companies have primarily been selected on the basis of data-mining by the Belgian tax authorities and/or exchange of information with other departments or foreign tax authorities. Elements such as fluctuating or deviating profitability margins, high intercompany leverage, restructurings or a structurally loss-making activity lead to a higher probability of a transfer pricing investigation.
It is in principle mandatory to reply to the request for information within one month. Even though the information request is general in nature and issued according to a standard format, it is crucial to carefully prepare and tailor the reply to the company’s specific situation so as to avoid unintended misunderstandings. Experience shows that the first round of exchange of information has a significant impact on the further evolution of the audit. When faced with the questionnaire, it is strongly recommended to timely request a ‘pre-audit’ meeting prior to sharing documents and data. The purpose of such meeting is to explore the background of the audit, to provide a first overview of the material intercompany transactions and to assess what information is most relevant to the investigation in order to better manage the information flow. Such meeting enables taxpayers to constructively discuss the timing and manage the resources required to appropriately deal with the audit. A pre-audit meeting is highly recommended as a best practice by PwC since it allows to delineate the appropriate scope of investigation in consultation with the tax administration.