Transfer Pricing: What does 2025 bring for Belgian multinational companies?

New Belgian documentation rules 

In 2025 the Belgian transfer pricing documentation rules will become more stringent. The purpose of these new rules is clear: increase transparency. The tightening of the existing rules will apply to financial years starting on or after January 1, 2025, and will affect the entire Belgian documentation package: the master file form (275MF), the local file form (275LF) and the CBC Notification (275 CBC NOT). Although the three-tiered documentation approach is not new, we start with a quick recap of the thresholds that define the scope of application. 

The master file form and local file form

Belgian companies belonging to an international group are required to prepare the master file form and local file form when exceeding at least one of the following financial thresholds during the year preceding the reporting year:

• A total of 50 million euros in operating and financial revenues, excluding non-recurring revenues; 
• A balance sheet total of 1 billion euros; or
• An average annual workforce of 100 full-time equivalents. 

Country-by-Country reporting requirements

These same Belgian companies must also comply with Country-by-Country (CBC) reporting requirements (275 CBC NOT and/or 275 CBC if they are the ultimate parent entity) when the consolidated gross revenues of the group also exceed 750 million euros.

The specific changes applicable to the three-part documentation package are discussed below. 

• The Local file form (275LF) brings additional transparency:
  • Separate reporting per country: cross-border transactions (goods, services and financial transactions) must now be reported per business unit and per country (previously it was possible to show transactions on an aggregated basis).
  • Transfer pricing methodology and studies: where previously only the existence and availability of the applied transfer pricing methodology and underlying transfer pricing study had to be indicated, both documents (if available) will now have to be submitted together with the form.
  • Framework agreements and model contracts: the available framework agreements or model contracts will now also have to be submitted (together with the form).

Since all available documents supporting the transfer pricing policy are now required to be filed, multinationals should (re)consider whether the preparation of a “local” documentation (cf. Local File concept in accordance with the OECD Transfer Pricing Guidelines) will become a necessity. After all, such a “Local File” provides the necessary interpretation and substantiation for the applied transfer pricing methodology and related agreements.

• For the Master file form (275MF) the tax authorities will now apply rules that go beyond the requirements prescribed by the international (OECD Transfer pricing) guidelines:
  • Analytical framework and functional analysis: the analytical framework of the group’s value chain and the functional analysis will have to be described in more detail. Such information should enable the tax administration to have a better view on the activities (e.g. purchasing, production, R&D, etc.) that create the most added value (in terms of profitability) within the multinational group. Furthermore it will be mandatory to test these additional details (as reflected in the financial statements) against the transfer pricing policy applied. 
  • Information on DEMPE functions: more information will need to be provided on the DEMPE (Development, Enhancement, Maintenance, Protection and Exploitation) functions associated with intangible assets (e.g. production knowledge, goodwill, patents, etc.). Thus, a comprehensive analytical framework for DEMPE functions will need to be drafted, which will enable tax authorities to gain a better insight into the (economic) contributions of the parties involved to the relevant intangible assets. Here the mere legal ownership over an intangible asset is of secondary importance when it comes to attribution of any (residual) result. Furthermore, when relevant, a list of transferred hard-to-value intangible assets will need to be included.
  • Financial activities: the financial policy pursued and the financial transactions present, both within the multinational group and with third parties, will need to be explained in (more) detail.
• The obligations for CBC notification (275 CBC NOT) will be further expanded: the form will have to indicate whether it is a first notification, an amendment of a previous notification, or a termination of the notification obligation. 

These new rules emphasize the importance of accurate and comprehensive transfer pricing documentation for groups operating in Belgium. It is essential to make timely preparations to avoid sanctions in case of non- (or insufficient) compliance.

Simplified & Streamlined Approach

With the Simplified and Streamlined (“S&S”) approach, the OECD, as the name implies, aims to simplify intra-group pricing for certain baseline marketing and distribution transactions. To achieve a pricing simplification, the S&S approach starts from the already existing transfer pricing framework and adds a standardized pricing methodology. For qualifying transactions, it would thus no longer be necessary to perform extensive economic (benchmarking) analyses, but it should become possible to identify an appropriate remuneration based on a limited number of parameters (such as type of industry and a number of financial ratios). 

There are also no financial thresholds that limit the scope of the S&S approach. As soon as there is a 'qualifying' transaction between a Belgian company and a foreign related party, the S&S approach can (or must) be applied. That being said, there are limiting factors to the application of the approach both in terms of product type (e.g. commodities, services, etc.) and type of activity (R&D, production, etc.).

The OECD argues that applying the S&S approach will result in a simplification of the application of the arm's-length principle, which they believe will lead to fewer transfer pricing disputes, lower administrative costs and greater tax certainty for both tax administrations and qualifying companies.

For now, the actual impact of this OECD initiative remains uncertain. Many countries have not yet taken a position on whether or not to implement these regulations. Even if Belgium were to implement the S&S approach, it is not yet certain whether the implementation will lead to a mandatory or optional application. 

Tax audits relating to financial transactions

It is expected that the tax authorities will continue to closely monitor the pricing of financial transactions during 2025. Hereby the focus of the tax authorities continues to shift towards assessing the “qualification” of a specific financial transaction (e.g. current account or (long-term) loans) instead of a mere assessment of the interest rate. As a result, the characteristics of each individual transaction (issue date, number of debt withdrawals, contractual versus effective maturity, debt capacity of the borrower) are more quickly brought into the equation. If the underlying support is subsequently found to be insufficient (or even non-existent), tax consequences can quickly manifest. Consequently, it is (even more) important to ensure proper support is prepared for intra-group financial transactions. 

Some practical steps that should definitely be considered:

• Map the financing structure: the start of any transfer pricing analysis is a mapping of the underlying fact pattern. During this exercise a number of items need to be addressed: 
  • Organization of the external and internal financing activity from a functional and risk perspective;
  • Underlying terms & conditions of each transaction (applicable credit rating, presence of additional securities, payment clauses, etc.)
  • Outstanding balances (amount, duration, expected changes, etc.)
• Prepare support: once the fact pattern is clear, it is important to check whether the arm’s length character of the entire transaction can be sufficiently supported (in terms of qualification of the financial transaction, the credit rating used, the interest rate applied, etc.). If this would not be the case, we highly recommend doing this for both historical and new transactions. 
• Document: the final piece of any transfer pricing exercise is the documentation (the contracts, the transfer pricing report, etc.). Since financial transactions are often ‘on the books’ for a longer period in time, and thus may find their origin in the (distant) past, it is particularly important to properly document the support prepared; 
• Evaluate regularly: as time passes, the terms set in the past (which may have been reasonable at the time) may require reconsideration. Therefore, it is important to regularly review outstanding balances to ensure they continue to pass the arm’s length test. 

Taking these steps not only helps to limit tax risks but can also provide opportunities. Mapping the financing structure will (at the very least) help plan (future) cash flows and can (at best) reduce the external financing burden through the use of a central financing entity. The use of a central financing entity can potentially also benefit other tax domains (e.g. VAT deduction at holding company level).

Conclusion

It is clear that 2025 in terms of transfer pricing will bring important points of attention for Belgian (multinational) companies. The more stringent documentation rules, the possible introduction of the S&S approach and the annual launch of specific transfer pricing audits will demand increased attention from the tax / finance function.

While these changes present many challenges, they also present opportunities for companies to strengthen their internal processes and optimize their tax strategies. By acting proactively and making the necessary adjustments, companies can not only meet the new requirements but also build a solid foundation for a sustainable and robust tax policy in an increasingly complex tax landscape.

If you would like assistance in reviewing your transfer pricing methodology and/or complying with Belgian transfer pricing requirements, please do not hesitate to contact our transfer pricing specialists.