Long awaited Transfer Pricing Circular published


On 25 February 2020, the Belgian tax administration published Circular Letter 2020/C/35 on the 2017 version of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2017 OECD TPG). This practice note is available in Dutch and French.

The circular is the final version of a draft circular letter originally published by the Belgian tax administration on 9 November 2018 with an invitation to comment. A news flash concerning the draft circular letter was published by PwC on 14 November 2018. PwC provided the Belgian tax administration with comprehensive comments on the draft.

The circular confirms that the Belgian tax administration adheres to the principles of the 2017 OECD TPG and the arm’s length principle embedded in them. It gives a very short overview of the updated Chapters of the OECD TPG following BEPS Actions 8-10 (Aligning transfer pricing outcomes with value creation) and briefly touches upon the following topics:

  • the arm’s length principle, transfer pricing determination and related miscellaneous issues (Chapter I);
  • OECD recognised methods (Chapter II – including the revised guidance on the profit split method, published in June 2018);
  • comparability analysis (Chapter III);
  • administrative approaches to prevent and resolve transfer pricing disputes (Chapter IV);
  • documentation requirements (Chapter V);
  • special considerations for intangibles (Chapter VI – including the guidance on hard-to-value intangibles);
  • special considerations for intra-group services (Chapter VII – including a discussion on low value-adding intra-group services);
  • cost contribution arrangements (Chapter VIII);
  • transfer pricing aspects of business restructurings (Chapter IX);
  • certain financial transactions (Chapter X);
  • permanent establishments in a transfer pricing context (Chapter XI).

The circular mentions the preferences or positions of the Belgian tax administration, where useful and appropriate. Having a close look at the final circular, however, one will observe that the Belgian tax administration still does not entirely follow the 2017 OECD TPG for some matters. It is also not clear whether the positions presented in the circular will apply only in a treaty context and how the Belgian tax administration will apply the circular in relation to Belgian corporate income tax (e.g. with regard to the (reversal of the) burden of proof).

Most of the provisions in the Belgian circular will apply retroactively. The Belgian tax administration will apply most of the circular to related-party transactions undertaken on or after 1 January 2018. However, the following paragraphs of the circular will apply to related-party transactions undertaken on or after 1 January 2020:

  • Paragraph 78: for comparability analysis purposes, three years of comparables should be considered whereas, for the tested party, only the year under review will be considered;
  • Paragraph 106: regarding limited-risk enterprises, companies with losses for two or more years are disallowed;
  • Paragraph 108: start-ups cannot be considered as appropriate comparables unless the tested party is a start-up;
  • Paragraph 115: performing a contemporaneous comparability analysis is recommended (results and documentation to be updated on a yearly basis);
  • Paragraph 116: the original transfer pricing study should be reviewed preferably every three years, unless facts and circumstances warrant an earlier review; and
  • Paragraph 126: when the tested transaction falls outside the arm’s length range, an adjustment will be made to the most appropriate point within the range and, if such point cannot be determined, an adjustment towards the median should be preferred.

PwC is in the process of a detailed review of the circular and will soon present a more in-depth analysis, in which we will identify to what extent the positions taken by the Belgian tax administration differ from the 2017 OECD TPG.

Although the circular confirms that any point within the (interquartile) range is at arm’s length, we notice an increased pressure from the ruling office and the tax inspectors to select the median.

We would further like to draw your attention to the audit waves that have been announced and which will be conducted by both the specialised TP audit team and the audit teams of the Large Enterprises division of the Belgian tax administration, with a combined focus on financing, transfer pricing and VAT.

Our PwC Transfer Pricing team in Belgium is available to navigate you through the impact for your business. They have the required knowledge and expertise to help you fully understand and comply with the 2017 OECD TPG at both an international and a domestic level.