New legislation on transfer pricing reporting

The initiative of the Organisation for Economic Cooperation and Development (OECD)  to tackle Base Erosion and profit Shifting (BEPS) has been incorporated in the Belgian Program Law of 1 July 2016 requiring transfer pricing documentation.

Belgium’s legislation aligns itself with the OECD guidance by adopting a three-tiered approach to transfer pricing reporting. Mandatory are: a Master File, a Local File and a Country-by-country report.

The Master File covers information relevant to the entire group of companies. It must contain an overview of the multinational group, including a description of its business activities, its intangible fixed assets, intra-group transactions and the consolidated financial and tax position, its general transfer pricing policy and worldwide allocation of income and economic activities.

The Local File must contain information on the local entity and a detailed information sheet regarding the transfer pricing analysis of the transactions between the local entity and the foreign entities of the multinational group, especially the relevant financial information regarding these transactions, the benchmarking study and the selection and application of the most appropriate transfer pricing method.

The Country-by-country report is used to estimate transfer pricing risks. Simply put the Country-by-country report requires information relating to the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which the group operates.

The Master File  and Local file must be filed in case of a combined operating and financial income of EUR 50 million  (excluding non-recurring income) or if the balance sheet totals EUR 1 billion or in case of an annual average number of 100 full time equivalents (FTEs).

A Country-by-country report has to be filed by Belgian ultimate parent entities of a multinational group with a gross consolidated group revenue of at least 750 million euros.

The transfer pricing rules apply to accounting years starting as from 1 January 2016.

The implementation of the reporting obligations can be highly complex therefore please feel free to contact Panis for more information.