Belgium: Tax authorities launch annual round of transfer pricing audits

In recent years, it has become an annual expectation for the transfer pricing audit department (referred to as the “transfer pricing cell” or “TP Cell”) within the Belgian tax authority to start the new year with the launch of a round of transfer pricing audits, by sending transfer pricing-related requests for information (Vraag om inlichtingen / Demande de renseignements) to a number of Belgian taxpayers.

A few trends observed from Belgian transfer pricing audits in recent years include:

• An increasing shift towards the use of tailored questionnaires as opposed to standardized questionnaires, and broadened scope of audits
• Information gathering based on country-by-country (CbC) reports
• A continuing goal of increasing the capacity of the Belgian tax authority to perform transfer pricing audits
• Increased assertiveness by the tax authority

The typical transfer pricing request for information shared by the Belgian tax authority often takes the form of a standardized questionnaire, comprising over 30 questions covering the company’s overall business, controlled transactions, functions, risks, and assets—as well as a request for any existing transfer pricing studies. In recent audits, certain taxpayers have been receiving questionnaires tailored to the company specifics, as well as containing questions focusing on various transfer pricing topics of particular interest (e.g., intercompany financing, acquisitions, restructurings, etc.).

While the tailored questionnaire had in the past been used primarily for certain large-sized multinationals, it has been observed that this approach has been more widely adopted in the wave of audits in 2022. Taxpayers may also be informed of the transfer pricing audits without an accompanying questionnaire, which is then followed by a tailored questionnaire.

This shift towards more taxpayer-specific questionnaires may be attributed to the Belgian tax authority’s capacities to first review the information filed annually by taxpayers through the Master file and Local file forms.

Furthermore, more short, one-page questionnaires are being sent out, when the transfer pricing auditors are directly inviting themselves for a meeting, and when no upfront written response is yet required. In addition, the scope of certain transfer pricing audits has also shifted from an audit of an individual Belgian entity, towards an audit of several (or all) of the multinational entity (MNE) group entities located in Belgium. In the past, transfer pricing audits would predominantly focus on a specific Belgian entity of an MNE group, rather than on the position of more than one entity at a time.

It is also further anticipated that transfer pricing audits driven by Directive on Administrative Cooperation (DAC) 6 reported arrangements are likely to be initiated in the near future—considering the first filings were made by taxpayers in February 2021.

As has been the case, responses to the request for information must be provided within 30 days upon receipt (in certain cases, extensions may be granted). Incomplete or delayed responses can result in an ex officio tax assessment. The possibility to request a pre-audit meeting remains, within 10 days upon receipt of the questionnaire.

While the CbC reporting requirement had been introduced in Belgium for financial years beginning 1 January 2016, it has only been from the end of 2021 onwards when the Belgian tax authority has started initiating meetings with certain taxpayers to discuss and gather further information on CbC reports that had been submitted.  These meetings aim to discuss discrepancies across a MNE group’s CbC reports filed over the years—helping the Belgian tax authority to identify potential transfer pricing risk areas.  This may be the start of CbC report-led audits in Belgium.

The Belgian tax authority has also mentioned that errors in previous CbC reports filed would warrant a re-filing to replace the previous CbC report filed—instead of filing a new / additional CbC report.  When the erroneous CbC report remains on the tax authorities’ system, the Belgian tax authority may continue to consult and review the CbC report which the taxpayer may have intended to replace.

Also continuing in 2022 is the (envisaged) reinforcement of TP Cell personnel with the recruitment of both fresh graduates as well as experienced transfer pricing professionals.

The headcount of the TP Cell has already increased significantly over the past few years, and this growth is expected to continue—increasing the capacity of the team to conduct even more transfer pricing audits. The number of transfer pricing inspectors has nearly doubled over the past five years, and a further significant increase in resources has recently been announced by the Minister of Finance.

The increased capacity for transfer pricing audits is not only a result of an expansion of the TP Cell, but also stems from the cooperation with the Large Companies Department of the Belgian tax authority, where members of the Large Companies Department have been trained in transfer pricing.  Additionally, the Special Investigation Squad (Bijzondere Belastingsinspectie – BBI / Inspection Spéciale des Impôts – ISI) has also been focusing more on transfer pricing issues by coordinating and liaising with the TP Cell.

Whereas in the past, transfer pricing audits were in most cases settled based on negotiations, it has been observed that more and more transfer pricing audits tend to trend towards being closed without a settlement, which is an indication of the increased assertiveness of the Belgian tax authority.

Following a non-agreement between the Belgian tax authority and the taxpayer, a notification of change (Bericht van Wijziging / Avis de Rectification) will be sent. The taxpayer then has one month to reply to this notification of change, starting from three business days after the sending date of the notice. If the Belgian tax authority does not agree with the arguments brought forward by the taxpayer, a taxation decision (Kennisgeving van Beslissing tot Taxatie / Notification de la décision de taxation) will be sent. Upon receiving the corresponding assessment note, the taxpayer has the right to invoke an administrative appeal within six months and three busines days after the sending date of that assessment note. Again, the Belgian tax authority (in the capacity of the appeal handling officer) will have to decide on the merits of the protest letter filed by the taxpayer. There is no deadline for this decision to be made (of course, within the boundaries of the principles of good administration); however the taxpayer is able to bring its case to court if no decision has been made after six months.

As a result of the increased assertiveness of the Belgian tax authority, it is expected that more transfer pricing audits will ultimately end up before court. Also, more and more cases will end up in a procedural action, seeking relief from double taxation. As the amounts at stake increase significantly and the assertiveness of the Belgian transfer pricing inspectors rises, it is to be expected that the mutual agreement procedures (MAP) as foreseen in the network of income tax treaties and the European Arbitration Convention will be activated more frequently. As such, the civil servants of the International Department of the Belgian tax authority (the Belgian competent authorities) will see their workload increase significantly in the next years to come.

With the increasing trend in transfer pricing audits in Belgium, multinationals operating in Belgium need to be well-prepared ahead of these audits to be able to shift the burden of proof to inspectors in the event of an audit.  This entails having a sound transfer pricing policy in place—one that is implemented consistently and supported by the necessary transfer pricing documentation and analyses.

If a taxpayer were to be selected for an audit, a clear strategy would need to be considered when responding to the information requests.  Requesting a pre-audit meeting is often recommended to potentially frame the boundaries of the transfer pricing audit from the beginning, and to establish an understanding with the inspectors.

With the several developments and increasing number of focus areas in the tax landscape, it is also imperative that Belgian taxpayers keep informed about these developments to anticipate and fully understand the underlying requests when a transfer pricing audit is launched.

Read a February 2022 report prepared by the KPMG member firm in Belgium

For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services practice in Belgium:

Dirk van Stappen | +3238211918 | dvanstappen@kpmg.com