Under the Programme Act of 1 July 2016 transfer pricing documentation became compulsory in Belgium. The new law is the result of the BEPS reports, issued by the OECD in October 2015 (see the July 2016 edition of Informatief for a comprehensive discussion on the subject). On 2 December the detailed forms together with the explanatory notes were published in the Belgian Official Journal. An overview of these follow below.
1. Country-by-Country (CBC) reporting – form 275 CBC
This report must be submitted in Belgium if a Belgian company is part of a multinational enterprise that makes a consolidated gross group revenue of €750 million or more. The report only has to be submitted in Belgium if the group’s ultimate parent entity is based in Belgium. This ultimate parent entity is defined in the act as ‘the group entity that has interests in other group entities and whose shareholders are not other group entities themselves’. In other words, it is the top holding company that is also required to compile the annual consolidated financial statements.
The country-by-country report must be submitted no later than 1 year after the reporting period has ended. If the report is not submitted in Belgium but that group has an entity in Belgium then there is an obligation of notification (275 CBC NOT): the authorities must be informed by the last day of the reporting period who shall submit the CBC. There is an extension for the first notification until 30-09-2017 for the period ending on 31-12-2016. The intention is that the exchange programmes between nations mean that this report will also reach the Belgian authorities.
The report must cover the distribution of the income, taxes and activities of a multinational enterprise for each territorial jurisdiction. While transfer pricing is in principle not at issue, it gives the authorities an excellent overview of where income, taxes and activities are located. This allows for improved risk assessments and more focused checks.
2. The master file - report 275 MF
Belgium is also introducing the obligation to compile a master file. Every Belgian group entity that has exceeded one of the following criteria in the financial year preceding the last closed financial year must fulfil this obligation:
- Either: a total of €50 million in operating and financial revenue, with the exception of non-recurrent earnings. According to the explanatory memorandum this pertains to all section 7 accounts, with only item 76 (extraordinary income) to be deducted;
- Or: a balance sheet total of €1 billion;
- Or: a workforce, averaged over the year, of 100 fulltime equivalents (FTE). In our view the explanatory memorandum states that the calculation of the FTEs is the same as that included in the social balance sheet of the annual financial statements.
The master file provides an overview of the multinational enterprise, and specifically of the nature of its activities, the intangible fixed assets, the financial transactions performed within the group, its consolidated financial and tax position, the general transfer pricing policy and the global allocation of its income and economic activities. This file must also be submitted within the year following the group’s reporting period (for the annual consolidated financial statements).
3. The local file – report 275 LF
The same criteria that apply to compiling a master file hold for whether or not a company is required to compile a local file. The local file consists of an introductory general section (which must be completed by all companies that meet one of the above criteria) and a second detailed form for each business unit. The second section only has to be completed if the intercompany transactions collectively exceed the annual threshold of €1,000,000. The local file is submitted together with the corporation tax return.
Pease note that, if you are not required to fulfil these formalities, you must nevertheless still ensure that your internal transfer pricing is on market terms and that you could be required to corroborate this at any time during a tax audit.
If you would like to know more about the new requirements with regard to transfer pricing documentation for your company, please do not hesitate to contact us.