Last week, the Belgian tax authorities have initiated a new wave of transfer pricing audits. 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. Companies have 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.
Companies selected for audit have been provided a questionnaire via physical mail as well as via e-mail (sent to the contact person of the company indicated on the corporate tax return submitted electronically). It is in principle mandatory to reply to the request for information within one month (an extension of this deadline is usually granted but needs to be request in time). In times where a lot of teams are working remotely, it can be critical to continue monitoring possible incoming letters in case the electronic copy did not reach the appropriate person. This is key to ensure that the taxpayer can duly respond within the legal time frame and preserve its rights.
Even though the information request is general in nature and is issued according to a standard format (some differences have been observed for entities which submitted transfer pricing documentation), 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. In these uncertain economic times, all meetings with the tax authorities will be done via video conference.
Please feel free contact your regular contact person to discuss the above. He/she will be happy to support you or refer you to one of our specialists if needed.