Transfer pricing documentation: stricter rules remain in force despite limited relaxation

Stricter requirements for the Master File

Midway through last year, the content of the Master File was significantly expanded. The main changes include:

• A more in-depth description of the value chain;

• Additional details regarding functions, risks, and assets within the group;

• Mandatory reporting of all DEMPE functions (Development, Enhancement, Maintenance, Protection & Exploitation) relating to intangible assets;

• Increased transparency and reporting requirements concerning intra-group financing and financial transactions.

Stricter requirements for the Local File

The Local File has also been expanded with additional obligations, including:

• For cross-border transactions exceeding EUR 1 million, a detailed overview of all intra-group transactions per business unit must be included. Reporting must be done per country of each counterparty, rather than on a consolidated basis. Furthermore, for each transaction, per business unit and per country code of the counterparty, the applied transfer pricing method must be specified.

• The Tax Identification Number (TIN) of the competitors of the Belgian entity, as well as that of the foreign permanent establishment of that entity, must be disclosed.

• Initially, all underlying documentation (contracts, benchmark studies, reports, etc.) had to be submitted together with the file.

This last requirement has recently been reversed. Important: the documents no longer need to be submitted automatically, but they must exist and be readily available. The local file must explicitly confirm that such documentation can be provided upon request.

This relaxation therefore does not alter the substantive justification that remains required.

Increased focus of the Belgian tax authorities on multinational groups

In recent years, the Belgian tax authorities have increasingly focused on multinational enterprise groups. In tax audits, transfer pricing has become a central point of attention.

The administration increasingly considers intra-group transactions as a potential risk area, particularly where functions, risks, and assets are spread across multiple countries, and where intangible assets or financial transactions are involved.

This increased scrutiny has resulted in a clear rise in transfer pricing audits, with the tax authorities intervening more swiftly where insufficient transparency is provided regarding the substantiation of intra-group transactions. This leads to more in-depth reviews of the economic reality underlying transfer prices:

• How are functions allocated within the group?

• Which entity bears which risks?

• Is the applied remuneration proportionate to those functions and risks?

The tax authorities expect companies not only to apply their transfer pricing policy consistently, but also to support it with up-to-date, detailed, and well-substantiated documentation.

Case law confirms: documentation is decisive

Recent court decisions demonstrate that courts attach significant importance to a consistent and well-supported file.

Where companies cannot convincingly demonstrate how their transfer prices were determined, courts increasingly side with the tax authorities. For multinational groups, a lack of transparency or inconsistencies may therefore more quickly result in adjustments, double taxation, and lengthy discussions.

A coherent and future-proof transfer pricing policy is therefore becoming ever more crucial.

How can we support you?

A well-prepared file requires not only regular updates but also a critical assessment of its completeness and quality.

Our specialized transfer pricing team assists companies with:

• The preparation of the Master File and Local File;

• The review and optimization of existing files;

• Support during tax audits;

• The strategic development of a future-proof transfer pricing policy.

Would you like to have your transfer pricing documentation reviewed? Contact our specialists via the form below.