Comprehensive Belgian transfer pricing guidance released

By Geoffroy Galéa, Laura Deroy, & Jasper Adriaensen, Deloitte,  Belgium

On November 9, the Belgian tax authority issued a draft transfer pricing circular clarifying their point of view in numerous areas. Topics addressed in the new Belgian transfer pricing guidance include appropriate use of comparables, intra-group services, financial transactions, and intangibles.

The draft circular, available in Dutch and French, confirms that not only will the government adhere to the 2017 OECD transfer pricing guidelines, taxpayers can also safely assume that any future changes to the guidelines will be followed.

The draft circular provides a summarized overview of the 2017 OECD transfer pricing guidelines as well as a high-level overview of the OECD guidelines on permanent establishments and some guidelines on financial transactions.

In general, it can be preliminary concluded that the positions stated in the circular merely clarify the administration’s position on certain topics. Of course, as long as this circular is not final, this position may change.  

The following paragraphs provide a brief overview of the various positions explicitly taken by the Belgian tax authority

Chapter one: arm’s length principle

The first chapter of the draft Belgian transfer pricing guidance focuses on the application of the arm’s length principle. The tax authority also addresses the effect of losses of a Belgian group entity or complete group, local government policies, received grants, location savings, and group synergies.

More specifically, with respect to the treatment of grants, it is determined that these should not be taken into account for determining transfer prices when the grants are directly linked to the production or turnover of goods or services.

 As such, grants should be subtracted from the turnover or cost base.

Chapter two: transfer pricing methods

In the second chapter, the administration provides additional information on the application of the various transfer pricing methods. As such, the draft transfer pricing circular provides a summary of the 2017 OECD transfer pricing guidelines on the five accepted transfer pricing methods.

The Belgian tax authority provides additional practical guidance with respect to the cost plus method and the transactional net margin method.

More specifically, it is stated that transfer prices based on estimated costs can be investigated when the effective costs are systematically higher. A transfer pricing adjustment can be made in this case.

 Furthermore, it is stated that if costs borne by a local entity are higher due to inefficiencies proper to this entity, it is the local entity itself that will bear these costs.

Chapter three: comparability analysis

The third chapter of the draft Belgian transfer pricing guidance focuses on comparability analyses.

The tax authorities clarify how a comparability analysis should be performed and interpreted.

More specifically, a position is taken with respect to the following items:

  • A comparability analysis should take into consideration a period of at least three years;
  • Whereas local comparable companies are considered to be best, comparable companies from a pan-European geographical area are accepted when sufficient local comparables cannot be retrieved. In this respect, however, it is preferred to use the fifteen countries which were members of the EU before the expansion of 2004 ;
  • Potentially comparable companies that are loss-making for two subsequent years should be excluded as comparables;
  • Potentially comparable companies that have been established less than four years ago should be excluded as comparables;
  • The tax authority prefers the application of diagnostic ratios over comparability adjustments;
  • A transfer pricing study should be updated on a three-year basis unless facts and circumstances require a faster update; and
  • The use of the interquartile range is accepted; however, the full range can also be accepted in exceptional cases where the comparables are of high quality. The median position will count as the standard reference rate and hence adjustments will be done to this position.

Chapter four: dispute resolution

Chapter four of the draft transfer pricing circular touches upon the administrative approaches to avoiding and resolving transfer pricing disputes.

The Belgian tax authority refers to the fact that the OECD is planning to make changes to this chapter and it will therefore not be discussed in detail at this point.

Chapter five: transfer pricing documentation

With respect to chapter five, on transfer pricing documentation, the Belgian tax authority refers to the existing legislation, circular, and webpage on the Belgian transfer pricing documentation requirements.

Chapter six: intangibles

The sixth chapter of the draft transfer pricing circular focuses on the considerations regarding intangibles.

Here, the administration provides additional clarification regarding the recently published approach to the valuation of ‘hard to value intangibles’ as provided for by chapter VI of the 2017 OECD transfer pricing guidelines.

The tax authority states that such approach will only be applied to transactions as of 5 October 2015, which is the date of publication of the final OECD report on Base Erosion and Profit Shifting (BEPS) action 8-10.

In addition, to ensure a sensible implementation of the respective double tax treaties, the administration will only make transfer pricing adjustments based on the aforementioned approach up to seven years after the end of the financial year during which the intangibles were transferred.

Chapter seven: intra-group services

Chapter seven of the draft Belgian transfer pricing guidance focuses on special considerations with respect to intra-group services.

In this chapter, the tax authority acknowledges the guidance provided by the 2017 OECD transfer pricing guidelines on the definition of what are intra-group services and what are not (i.e. shareholder services) and the approach with respect to the remuneration of low value-adding services.

With respect to the application of the cost plus or transactional net margin method on a cost basis, the Belgian tax authority states that the profitability of a limited risk service provider should be guaranteed.

Hence, their margin should not be affected by any financial or non-recurring costs. Therefore, the service provider should recharge these services to the service recipient without any margin.

Chapter eight and nine: cost contribution arrangements and business restructurings

Chapters eight and nine of the draft transfer pricing circular focus on cost contribution arrangements and business restructurings.

No significant positions by the tax authority were taken with respect to these topics.

Chapter ten: financial transactions

In chapter ten, the tax authority takes positions on certain topics regarding the pricing of financial transactions.

With respect to intra-group guarantees, the tax authority expresses a preference for the ‘yield-approach’. Under this approach, any remuneration for a guarantee is required to take into account the difference in interest rate which the entity would have received without any guarantee.

In addition, guidance is provided with respect to the use of cash pools. The tax authority states that all participants can be expected to have the same rating and that the remuneration should be based on an interest rate which is more beneficial than an interest rate the participants would have been able to negotiate on a standalone basis.

Finally, the government believes that a cash pool should, in essence, be a short-term transaction. Therefore, if the same participant would keep an amount in deposit or hold a negative amount for over six months, this will be requalified as a short-term loan.

Preliminary conclusion

The above paragraphs provide an overview of all the positions explicitly taken by the administration. However, as it still concerns a draft circular, none of these have a definitive status yet.

All interested parties are invited to submit their comments or recommendations regarding the draft circular by 12 December.

Further interpretation will be provided on the final circular when it is published.

— Geoffroy Galéa is a lawyer (admitted to the Brussels’ Bar) from the Tax department of Laga (the law firm that collaborates with Deloitte) and an assistant at the University of Liège, he can be reached at

— Laura Deroy is a senior Transfer Pricing consultant with Deloitte and an assistant in the Master in Tax Law at the University of Antwerp, she can be reached at

 — Jasper Adriaensen works as a tax consultant at Deloitte Belgium’s Global Business Tax department, he can be reached at


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