Is transfer pricing documentation an annual requirement for your company?

Transfer pricing is high on the agenda of companies withcross-border activities. Indeed, structuring intra-group transactions has a direct impact on the distribution of group profits between different countries. And thereby also on the tax revenues of those countries. This explains why tax authorities like to look over their shoulders to assess whether Belgian and multinational groups are applying a market-compliant transfer pricing policy.

From 2016, companies that are part of a multinational group and that exceed the prescribed thresholds are required to follow transfer pricing documentation rules. They have to annually submit a so-called group file (Master File) and a local file (Local File). In certain cases, this obligation also includes a country report (Country-by-Country File) or a CbC notification.

Group file and local file

Conditions

The obligation to file a group file and a local file applies to group entities of multinational groups that exceed one of the following criteria during the previous financial year, based on their statutory accounts:

• A total of € 50 million of operating and financial income (excluding non-recurring income) or;
• A balance sheet total of € 1 billion or;
• An annual average workforce of 100 full-time equivalents (FTEs). Suppose your company had at least 100 FTEs on 31 December 2020, then you must submit a group and local file in 2021.

Content

• The group file gives a general overview of the multinational group, such as the nature of the business activities, intangible fixed assets, financial intra-group transactions etc.
• The local file is aimed at the Belgian group entity. If it exceeds the threshold of € 1 million in transactions with related companies, a detailed information form must also be submitted. That form is part of the local file, and provides insight into connected transactions, including the transfer pricing methodology used.

When to submit?

• The group file must be submittedwithin 12 months after the last day of the reporting period of the multinational group.
• The local file must be submitted together with the corporate tax return.

For accounting years ending on 31 December 2020, this means that the local file must be submitted before 28 October 2021. The deadline for the group file is 31 December 2021.

Country report

Conditions

The country report must only be submitted by large groups that exceed the threshold of € 750 million in consolidated gross revenue.

Even though this obligation only affects a limited number of multinationals with their headquarters in Belgium, it is still appropriate to verify whether the Belgian group entity must file a CbC (Country-by-Country) notification. That CbC notification document indicates which company within the multinational group will submit the country report (and in which country).

In order to reduce the administrative burden somewhat, it is now no longer necessary to provide the CbC notification annually. This is only necessary when a change occurs, such as a change in the identity of the parent entity.

When to submit?

Like the group file, the notification document must be submitted within 12 months of the last day of the reporting period.

Fines for non-compliance with the rules

Non-compliance with transfer pricing documentation requirements is not without consequences. Failure to submit, incomplete or late submission of documents is considered a violation. Administrative fines ranging from € 1,250 to € 25,000 can be imposed.

Fill out transfer pricing forms carefully

You risk penalties if transfer pricing forms are completed or submitted incorrectly, incompletely or thoughtlessly. You will thereby also significantly increase the likelihood of a transfer pricing audit. So be sure to pay sufficient attention to this.

For fiscal year 2020 (and possibly beyond), for example, it will be important to adequately substantiate and document any deviations from the transfer pricing policy as a result of the corona pandemic.

You should therefore consider the annual preparation of these forms as an ideal moment to review your current transfer pricing policy, and to adjust it where necessary.

If you would like guidance on your transfer pricing documentation or general transfer pricing policy, please don’t hesitate to contact our experts.