On 15 July 2024, three new Royal Decrees of 16 June 2024, were published in Belgium relating to the Local File Form (275 LF), Master File Form (275 MF) and Country-by-Country Reporting (“CbCR”) Notification Form (275 CBC NOT), replacing the Royal Decrees of 28 October 2016, with respect to the transfer pricing documentation (article 321/5 §4 and §5 of the Belgian Income Tax Code).
The new Royal Decrees require the inclusion of additional information in the Local File Form, Master File Form and CbCR Notification Form for qualifying taxpayers with respect to financial years starting on or after 1 January 2025.
Background
In line with guidance provided by the OECD in Action Point 13 of its Base Erosion and Profit Shifting (BEPS) reports, Belgium had introduced transfer pricing compliance requirements through the Program Law of 1 July 2016, and the related Royal Decree dated 28 October 2016.
A Local File Form and Master File Form should be filed by each Belgium company or permanent establishment (of a multinational group) which exceeds one of the following thresholds (to be assessed based on the standalone financial statements of the Belgian taxpayer – company or permanent establishment – for the preceding financial year):
- A sum of operational and financial income of EUR 50 million (excluding non-recurring income);
- A balance sheet total of EUR 1 billion; or
- An annual average of employees of 100 full-time equivalents.
The Local File Form should be filed as part of the corporate income tax return on the specific electronic platform of the Belgian tax authorities. The filing due date corresponds to the filing date of the corporate income tax return. The Master File Form should be filed with the Belgian tax authorities within a period of 12 months after the close of the reporting period of the group.
A CbCR Notification Form needs to be filed by each Belgian constituent entity which is part of a group that falls under the CbCR requirements. The CbCR Notification Form must be filed by the end of the group’s reporting period. The CbCR Notification does not need to be filed annually if no changes have occurred since the last filing.
New Royal Decrees of 16 June 2024
The amendments to the Local File Form, Master File Form and CbCR Notification Form are driven by the additional guidance included in the latest version of the OECD TP Guidelines (2022) particularly with respect to Hard-to-Value Intangibles and financial transactions. Furthermore, the adapted Belgian Transfer Pricing Forms incorporate additional insights gained by the Belgian tax authorities since the introduction of the Program Law of 1 July 2016, designed to better define the target taxpayers in scope and improve risk analysis.
The main changes to each form are described below:
Local File Form (275 LF)
The adapted version of the Local File Form is generally in line with the previous version but contains several important changes:
- A detailed overview of the intercompany transactions per business unit is required to be provided separately per country rather than on an integrated basis.
- When a transfer pricing methodology or policy document, and/ or framework agreement or model contract, and/ or transfer pricing study are available, these documents need to be attached to the Local File Form in a readable PDF format. Previously, the Belgian taxpayer only needed to indicate in the form whether these items were in place, without having to proactively submit/attach the documents.
- Some minor adaptations require that the Tax Identification Numbers of competitors of the Belgian entity should be included, as well as the Tax Identification Number(s) for the foreign Permanent Establishment(s) of the Belgian entity. In addition, the country code relating to cost contribution agreements, advance pricing agreements, rulings and in-house (re)insurance policies should also be indicated.
Master File Form (275 MF)
The new version of the Master File Form did not change compared to previous model. However, the explanatory notes to the Master File Form indicate that additional information needs to be included in the new version of the Master File Form. This includes the following, all of which extend beyond the documentation requirements under the OECD TP Guidelines:
- A description of the analytical framework for the value chain and functional analysis of the group following a four-step methodology (e.g., listing the value drivers, mapping the principal contributors, allocation of the profits, comparison and alignment with transfer pricing outcomes). This additional information requires a more detailed value chain and functional analysis, which goes beyond the requirements included in the OECD TP Guidelines.
- An elaborated description of the DEMPE functions relating to intangibles needs to be disclosed in the Master File Form. This includes a detailed analytical framework for the DEMPE function, also including a list of the group’s transferred or exploited Hard-to-Value Intangibles.
- For the transfer pricing policies relating to financing arrangements, a more detailed description of the financial policies and transactions is requested, including information on financial guarantees, analysis of captive insurance companies, etc.
CbCR Notification Form (275 CBC NOT)
The CbCR Notification Form has not changed significantly. However, the new version of the form requires entities to indicate if the submitted form is a first notification, modification of previous notification, or termination of a notification obligation.
KPMG Observations
Local File Form
Although the new versions of the transfer pricing forms might give the impression that only minor adjustments have been made, it can be interpreted in practice as a step towards an implicit mandatory transfer pricing documentation requirement (i.e., by obliging companies to include available/submit documentation as attachment(s) to the Local File Form). However, the Local File Form, and more specifically the “B10” table of the form, does not explicitly oblige Belgian entities/permanent establishments to have transfer pricing documentation available for each type of intercompany transaction/dealing (as they are only obliged to attach it in case it is available).
Nevertheless, based on this new requirement, one may assume that the data-mining tool of the Belgian tax authorities (“ManTra”, which is used to identify Belgian taxpayers for a transfer pricing audit) will likely consider as potential transfer pricing audit targets any companies/permanent establishments which have indicated that only limited documentation is in place.
Companies/permanent establishments that lack transfer pricing documentation (i.e., Methodologies/Agreements/Studies) available, may therefore need to reconsider this position going forward.
On the other hand, the additional information filed by the taxpayers will likely oblige transfer pricing inspectors to be more specific in their transfer pricing information requests in the event of an audit, whereby the current information requests are still very standardized.
Master File Form
The second important change relates to the Master File Form content, which extends beyond what is expected under the OECD TP Guidelines. For instance, the third and fourth step of the value chain analysis mentions “allocation of the profits” and “comparison and alignment with transfer pricing outcomes” and is relatively specific compared to the more general wording used by the OECD.
As non-Belgian headquartered companies typically attach the Master File prepared by the group to the Belgian Master File Form, one may need to review whether modifications to the group Master File could be required (as from 2025) in order to be compliant with these new regulations.
In addition, financial intercompany transactions have been a continued focus area during Belgian transfer pricing audits over the past years. It is therefore unsurprising that the Master File form now requires additional information on intercompany financing transactions.
Authors: Dirk Van Stappen | Partner Corporate Tax, Yves de Groote | Partner Corporate Tax, Kathy Lim | Partner Corporate Tax, Andres Delanoy | Partner Corporate Tax
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