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News 14th of January 2019 By Evelien Depré, Biene Ongenaert and Delphine Vanassche

The importance of a good transfer pricing policy with the entry into force of the Belgian CFC legislation

The importance of a good transfer pricing policy with the entry into force of the Belgian CFC legislation

The CFC legislation

Example (from the explanatory memorandum): a Belgian company transfers the intellectual rights of a computer programme developed by it to a subsidiary in Hungary. However, this computer programme is still regularly updated by employees of the Belgian company. It is clear that the relevant key functions in this situation are in Belgium. Based on the CFC rules, the profits that the Hungarian company has earned as a result of the sale or rental of licenses for the use of this programme can be taxed in Belgium.

1. Multinational group

2. Country with a low tax rate

A foreign subsidiary has a taxable base of EUR 100 in 2018 in a country with a tax rate of 15 percent. The foreign tax due is therefore EUR 15. At first glance this does not seem to be a 'low tax rate' because 15 percent is more than half of the Belgian corporate tax rate (29 percent from 2018).
However, if we were to determine the taxable base of the foreign company under Belgian law, the taxable base would be EUR 200. In that case, the subsidiary is indeed located in a country with a low tax rate. The effective foreign tax rate, taking into account the Belgian taxable base, is only 7.5 percent (EUR 15 equals 7.5 percent of the Belgian taxable base of EUR 200).

3. Control

4. Profits connected to Belgian key functions

The importance of a good transfer pricing policy 

Disclaimer
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.
Evelien Depré
Evelien Depré
Biene Ongenaert
Delphine Vanassche
Delphine Vanassche