Thursday, 17 August 2017

Transfer Pricing Documentation - Belgian Local File as integral part of the tax return: Procedural issues?

As we reported earlier, Belgium has adopted formal transfer pricing documentation rules.

Each Belgian company or PE involved in cross-border transactions has to prepare a master file and local file when one of the following criteria for the previous financial year is met: (i) gross revenues (operational & financial) exceed EUR 50 million, (ii) total balance sheet amount exceeds EUR 1 billion, (iii) average FTE exceeds 100. For these purposes, specific forms have to be used. From a formal perspective, the Masterfile has to be filed with the competent tax office within 12 months after closing of the financial year. According to the programme law published 4th of July 2016 in the Belgian official Gazette the form containing the local file has to be filed together with the company’s corporate income tax return: “A Belgian group entity, is required to submit a local file with her corporate tax return concerning the financial year to which the corporate tax return applies (unofficial translation)”.

In the Belgian official Gazette of 14 August 2017, earlier administrative guidance has been amended to the following: “This local file (form 275 LF) must be submitted within the same term that applies to the corporate tax return or the tax return for non-resident companies. This form is an integral part of the tax return (unofficial, literal translation)”.

Accordingly, the tax authorities now take the unambiguous view that the local file form has to be considered as a part of the corporate income tax return. Next to administrative penalties or tax increases that may apply in case of late or incomplete filing, from a procedural perspective, this may have important consequences – I.e. in case the local form would be incomplete, the tax authorities could take the position that the tax return was not filed correctly. In such case ex-officio assessments may apply.

We have noted that the obligation to attach the local file to the tax return is not included royal decree of 22 May 2017 regulating the corporate income tax return form. Apparently, the tax authorities now want to correct this omission with administrative guidance. From a legal perspective, it can be questioned, in our current view, whether this guidance is compliant with the Belgian corporate income tax code, since the contents of the tax return form arguably have to be determined by a royal decree; An administrative guidance as such in this context may be deemed insufficient and consequently potentially not to be invoked by the tax authorities in court. We are currently further exploring this argument in more detail, and whether it could be used by corporate taxpayers that end up in a defense position – i.e. when the tax authorities would e.g. impose ex office taxation based on incomplete filing of the tax return and/or errors in the local file. We will provide for an update on the subject matter, but in any case recommend taxpayers that are to file such local file “as integral part” of the tax return to carefully review the information requested and provided in sufficient detail.


Andy Neuteleers - Partner T/A Economics
Nico Demeyere - Counsel Tiberghien