On February 25, 2020, the Belgian tax administration released a final version of the Circular letter on Transfer Pricing, which sets out the positions of the Belgian tax administration on multiple items stemming from ongoing BEPS developments.

Alignment with 2017 edition of the OECD Transfer Pricing Guidelines

The Circular (NL/FR) is generally aligned with the 2017 edition of the OECD Transfer Pricing Guidelines, and aims at adopting and addressing some of the recently introduced OECD concepts in a Belgian context.

With regard to the determination of transfer prices, it is formally clarified that existing contracts should be considered as the starting point. However, if the outcome of the functional analysis of the transaction deviates from the terms of the contract, the behavior of the parties involved in the transaction predominates / takes precedence over the contractual provisions (the latter being ignored by the Belgian tax administration). The importance of each risk-taking party having control over those risks, and having the financial capacity to bear these risks, has also been highlighted.

In discussing the transfer pricing methods, some points of concern are discussed in further detail, including:

  • The use of budgeted costs versus actual costs;
  • The calculation of the cost base and the treatment of pass-through costs (i.e., costs with an advance nature);
  • The use of Belgian accounting standards versus other accounting standards; and
  • The calculation of net margins and the impact of the non-recurring costs and revenues.

The chapter discussing the comparability analysis mentions that an update of the original comparability analysis should be performed every three years – in line with OECD guidance. When testing the arm’s length nature of the transaction, the result of the tested party will be accepted when the result of the tested transaction falls within the interquartile range. The initial draft mentioned that when the result of the tested transaction falls outside the interquartile range, the Belgian tax administration could make adjustments towards the median of the range. This wording has been slightly changed in the final version dated February 25, 2020.

With regard to the hard-to-value intangibles (“HTVI”), the Circular letter confirms a number of positions which are aligned with the OECD report published on June 21, 2018. For example, it is assumed that there is always an information asymmetry between the taxpayer and the tax authorities. For this reason, the Belgian tax administration may consider ex post outcomes as presumptive evidence on the appropriateness of the ex-ante pricing arrangements. The paragraph in the draft Circular stating that this principle will only be applied by the Belgian tax administration on controlled transactions involving HTVI which have taken place on or after October 5, 2015 is deleted in the final version.

For low value-adding services, a simplified approach may be applied for the determination of arm’s length charges. If an activity does qualify for the simplified approach, a mark-up of 5 percent of the relevant cost base may be applied.

On business restructurings, a number of principles with respect to the termination or substantial renegotiation of existing arrangements are being discussed in the Circular letter. In this respect, the question arises whether the restructured entity would be entitled to a compensation under arm’s length conditions.

Finally, the Circular letter refers to the Authorized OECD Approach with respect to the attribution of profits to permanent establishments. In this respect, a distinction is made between double tax treaties based on the OECD Model Conventions before 2010, and from 2010 onwards. It is observed that this section has been shortened considerably compared to the initial draft.

Guidance on intercompany financing

The Circular also includes additional guidance on intercompany financing, having adopted various concepts from the recently (released on February 11, 2020) finalized OECD report on the transfer pricing aspects of intercompany financing. Specific positions related to intercompany financing are discussed, such as the following:

  • A company of a multinational group would not require any payment for ‘implicit support’ (i.e. the benefit of a better credit rating that may arise from being part of a multinational group);
  • Preference for the 'yield approach' when determining the compensation for the guarantees;
  • Deposits or borrowings that remain for period longer as 12 months will be re-characterized as short-term loans. One should note that the wording applied is softer in the final Circular letter. The initial draft Circular letter made reference to an automatic requalification of a deposit into a loan after a six months period;
  • All cash pool participants are considered to have the same credit rating; and
  • Cash pool leaders acting as administrators to the cash pool should not be remunerated more than a market-based service fee, which would be typically determined based on a cost-based approach.

Entry into force

With regard to the date of entry into force the Circular foresees two dates. Depending on the paragraphs involved the date of entry in force will be for transactions as from January 1, 2018 or January 1, 2020. Transfer pricing rulings obtained remain valid.


The Circular letter provides some interesting insights on the Belgian tax administration’s positions on various transfer pricing topics, which are expected to form the basis for various discussions during transfer pricing audits. In general, the Belgian tax administration continues to be broadly aligned with the OECD transfer pricing guidance, which now has been adapted to the Belgian context.

The Circular explicitly mentions that it adopts all the principles included in the final OECD report on transfer pricing aspects of intercompany financing dated February 11, 2020. This final report is including a significant number of far reaching new statements, which might impact current transfer pricing policies. It will therefore be essential to review existing intercompany financing policies, to assess whether they are still in line with the new guidance of the OECD and the Belgian tax authorities.