The foundation for these new documentation obligations is the BEPS Action Plan, which was developed by the OECD at the request of the G20 in 2013. The action plan consists of 15 action points which aim to counteract erosion of the taxable base and shifting of profits to countries with a more favourable tax regime. Action point 13 focuses on increased transparency by means of revising the legislation on transfer pricing documentation. In order to achieve the objectives of this action point, the OECD recommends a three-tiered approach in developing the documentation obligations: a country report ('Country-by-Country Report' or 'CBC Report'), a group file ('Master File') and a local file ('Local File').
The country report
Only multinational groups with a consolidated gross turnover of at least €750 million are required to prepare and submit a country report, with an overview of their activities worldwide. In principle, this task falls to the ultimate parent entity. In certain cases, a Belgian group entity may be obliged to act as a surrogate parent entity. Linked to this, the Belgian legislator has introduced a notification obligation for the Belgian group entities. The latter must disclose the identity and jurisdiction of the ultimate parent entity or surrogate parent entity to the Belgian administration no later than the last day of the financial year of the multinational group.
The master file and local file
Because of their informal character, the provisions concerning the master file and the local file have not been included in the model legislation of the OECD. The actual implementation of these files can therefore differ from country to country. The master file gives an overview of the multinational group, including the nature of its business activities, the intangible fixed assets, the intra-group financial transactions and the consolidated financial and fiscal position of the multinational group, its complete business policy and the global allocation of its revenues and economic activities. The local file consists of the general form and the information form. The exact content and structure of all forms will be determined by Royal Decree.
In addition to the usual country languages, it is also allowed to prepare these three reports in English. However, this tolerance only applies to the report itself or a subsequent audit. For any other use of the forms, therefore, a translation into one of the national languages of Belgium can be requested.
Validity of the documentation
These new documentation obligations apply to the reporting periods or financial years commencing on 1 January 2016. Both the country report and the master file must be submitted within 12 months after the end of the financial year of the multinational group. The submission must be made to the administration responsible for income tax office. The latter will then share the country report with the Member States and partners concerned. The local file should where possible be delivered a few months earlier. After all, the Belgian group entity is obliged to submit this document with the tax return.
If the country report, the master file or the local file are not submitted or submitted late or with gaps, or if the notification obligation is not met, this could result in administrative penalties ranging from €1,250 to €25,000. The law stipulates that these penalties can only be imposed from a second offence.
We base our advice on current legislation, interpretations and legal doctrine. This does not prevent the administration from being able to challenge it or to change existing interpretations.