The Belgian tax authorities’ national transfer pricing (TP) audit team has launched the 2024 TP audit wave. Initial indications are that the 2024 wave will extend over several months, even though some taxpayers may have already received a TP audit questionnaire.
The 2024 TP audit questionnaire is generally aligned with that of 2023; however, additional questions specific to the taxpayer may also be included.
This alert summarises the key aspects of the 2024 TP audit wave.
Companies will be selected for the 2024 TP audit wave based on the outcome of a risk assessment analysis, performed by the tax authorities’ “MANTRA” software.
Although the criteria used to perform the risk assessment remain confidential, it would be reasonable to assume that indicators such as volatile sales or profit margins, structural loss-making positions, significant carry forward losses, high debt to equity ratios, important year end adjustments, the presence of a permanent establishment, or business restructurings, among others, would lead to an increased likelihood of being subject to a TP audit.
Additionally, compliance with Belgian documentation requirements (i.e., local file form, master file form, and country-by-country (CbC) report, or CbC notification obligation) is taken into account in the selection process.
Noncompliance with these TP documentation requirements will substantially increase the likelihood of selection for a TP audit. Therefore, companies have a higher risk of being selected where:
Noncompliance with the TP documentation requirements also may trigger penalties ranging from EUR 1,250 to EUR 25,000.
The Belgian tax authorities have already started to send out the first penalty notifications for late submission or failure to submit TP forms.
In light of the above, companies are strongly recommended to check that they have complied with all relevant TP documentation requirements and compliance obligations. However, it should be noted that this does not preclude companies that do not reach documentation thresholds from receiving a request for a pre-audit meeting or a TP audit questionnaire.
Additionally, it appears that entities being part of a same group could be targeted simultaneously. This simultaneous targeting demonstrates a coordinated approach by the tax authorities to assess the overall consistency of a group’s transfer pricing policy.
For the 2024 TP audit wave, it appears that selected taxpayers will receive a notification of the TP audit which will include the organisation of a pre-audit meeting, with the date and time provided in the notification but with the possibility of rescheduling.
The objectives of the pre-audit meeting are to provide the TP audit team with an overview of how the company operates within the group and from a TP perspective, allow for a potential onsite visit, and answer any questions the taxpayer may have in view of the upcoming TP audit.
In the 2024 version of the TP audit questionnaire, it appears that the organisation of a pre-audit meeting will be the first step of the TP audit process and no longer optional for the taxpayer as it was in previous years.
The average TP audit takes between seven and 18 months, depending in part on whether the required TP documentation is readily available. In this respect, it is crucial to ensure consistency between past or pending TP reporting to the Belgian tax authorities (i.e., the local file form, master file form, or CbC report) and the information provided to tax officials during the 2024 audit. Careful preparation for the pre-audit meeting is essential as the meeting will have an impact on the entire audit process and should also enable the scope of the customised TP audit questionnaire to be narrowed down, depending on the type of information provided.
Financial years closing on 31 December 2021 and 31 December 2022 would be within scope of the 2024 TP audit wave. However, it is possible that in the case of a transfer pricing adjustment, additional information related to the financial year closing on 31 December 2023 may be requested. Where there are brought forward tax losses, the Belgian tax authorities may investigate prior financial years, back to the year in which the losses arose.
Under measures providing for effective cash taxation further to tax audit adjustments, no tax attributes (including current year and brought forward tax losses and dividends received deduction (DRD), the investment deduction, the innovation income deduction (IID), and the notional interest deduction (NID)) may be offset against the additional taxable base resulting from an adjustment, other than current year DRD that has not yet been fully claimed. The application of the measure is limited to situations where the adjustments imposed by the tax authorities have resulted in an additional tax liability of at least 10%.
Belgian law also provides for adjustments for abnormal or benevolent advantages received in particular situations (articles 79 and 206/3 of the Belgian Income Tax Code). A Belgian company that receives (directly or indirectly) an abnormal or benevolent advantage from a company to which it is directly or indirectly related, may not use any current year and brought forward tax losses, or apply the participation exemption, investment deduction, IID, or NID against the taxable income arising from that advantage.
The risks are significant because the adjustments may sometimes result in double economic taxation of the same income for two related entities in two different jurisdictions.
Whereas previously a majority of TP audit cases in Belgium resulted in a settled outcome, an increasing number of audit cases have seen the Belgian tax authorities unwilling to alter their position or maintaining a proposed TP adjustment, triggering the start of the administrative appeal procedure.
The taxpayer then has the option to submit a formal tax appeal before the Belgian courts, and/or to initiate the mutual agreement procedure (MAP) available under Belgium’s tax treaties. A MAP is intended to eliminate double taxation, including as a consequence of a TP adjustment. These procedures can be undertaken simultaneously, and taxpayers should evaluate the benefits
Despite the fact that some taxpayers have already received a TP audit questionnaire, not all affected taxpayers have yet been contacted, as the 2024 TP audit wave is expected to last for several months. It is also important to note that, based on the law of 20 November 2022, amendments to the investigation, assessment, objection, and retention periods entered into force as from tax year 2023 (i.e., financial years closing as from 31 December 2022). The current three-year investigation period is extended to six years when the tax return includes certain international elements, such as transfer pricing documentation (see our Tax Alert of 13 October 2022).
Eric is a partner in Deloitte Legal's Tax Advisory team of lawyers. He focuses on international tax and is among others active in the pharmaceutical industry. He also regularly advises large groups based in the United States or France. Eric assists multinational groups through Business Model Optimisations and International Strategic Tax Reviews. He regularly publishes in different areas of tax law (Common Consolidated Corporate Tax Base, notional interest deduction, anti-abuse measures, etc.).