On 8 February 2019, an addendum to the circular was issued containing additional guidance on the transfer pricing documentation penalty regime.
All companies and permanent establishments must prepare transfer pricing documentation unless they meet certain thresholds for exemption from filing documentation. Failing to file (in due time) the transfer pricing documentation (i.e. country-by-country report (form 275 CBC), country-by-country report notification (form 275 CBC NOT)), master file (form 275 MF) and local file (form 275 LF)) will be sanctioned with penalties. In case of violation independent from the will of the taxpayer, the penalty is nil. In case of violation without the wilful intent to harm or to commit fraud the penalty ranges from 1.250 € up to 25.000 € as from the second violation until the fifth and following. In case of violation with the wilful intent to harm or to commit fraud the penalty for the first violation is 12.500 € and for the second violation and following 25.000 €.
The addendum to the circular specifies that there can be different dates of when to speak of ‘violation’. This depends on the reason of violation (i.e. late or non-filing, but correctly and fully complete or incorrect and/or incomplete filing), mainly:
- in the event of failure to submit or late submission of a correctly and fully completed country-by-country report , country-by-country report notification, master file or local file, there is a violation as from the date the form should have been submitted (i.e. the deadline expired).
- in the case of the submission (late or timely) of an incomplete or incorrect country-by-country report (notification), master form or local form, there is a violation as from the date on which the form or notification is submitted.
Order of violation
The circular explains how the order of violation will be determined. More specific, to determine the order of violation, it is not necessary to take into account all violations committed by the same taxpayer, but only those that can be classified under the same nature. There are three different natures of violation,
- independent from the will of the taxpayer,
- without the wilful intent to harm or to commit fraud, and
- with the wilful intent to harm or to commit fraud.
The determination of the amount of the penalty of the second or subsequent violation depends on whether the taxpayer was informed that a previous violation of the same nature had been established already on his or her behalf. The taxpayer is validly informed of the detection of a previous violation once the tax authorities send a notice of penalty relating to this violation. Examples can be found in the addendum to the circular.
Implementation date of the Royal Decree and law
Violations without the wilful intent to harm or to commit fraud are being penalised as from 19 July 2018. Violations with the wilful intent to harm or to commit fraud are penalised as from 8 January 2018.
It seems that once the systems of the tax authorities are fully operational, this will be monitored closely and notifications for penalties will be sent to taxpayers in case of late or non-filing.
If you have any question with regard to this matter, please reach out to your regular PwC advisor.