On 25 February 2020, the Belgian Tax Administration (BTA) Published the Final Version of the Circular Letter “Transfer Pricing” (Circular Letter 2020/C/35). T/A economics provided extensive detailed feedback and was part of subsequent discussions with the BTA regarding the feedback received. The circular letter confirms that the BTA adheres to the 2017 OECD Guidelines, but also includes the interpretations and preferences of the BTA as regards various transfer pricing topics.
Our first key takeaway concerns the crucial topic of the circular letter’s entry into force. After heavily debating a retroactive implementation of the latest version of the OECD Guidelines, the circular letter now stipulates that it is applicable for intercompany transactions as of 1 January 2018. However, certain paragraphs - concerning the interpretation of the BTA, or a Belgian-specific consideration - will only enter into force as of 1 January 2020. Nevertheless, we note that some of our concerns regarding the retroactive effect of certain other paragraphs that in our view deviate from the 2017 OECD Guidelines, and hence constitute an interpretation, remain in place. Considering that retroactivity as such is based on strict principles in case of legislation and the circular letter de facto cannot be applied in a retroactive way (under penalty of the infringement of the principles of good administra-tion), taxpayers may consider developing procedural as well as economic argumentation to their advantage when tax administrations refer to this circular letter. Nevertheless, the circular letter confirms that advance decisions granted before the issuance of the circular letter are not subject to review in retrospect following the views stated in the circular letter.
Another key takeaway is that several of our fundamental inputs provided in the second discussion round were not taken into account. These inputs relate to fundamental discrepancies between the (literal) reading of the 2017 OECD Guidelines and the final circular letter, most notably in relation to the first Chapter, including the basic translation of the arm’s length principle itself containing such discrepancy (circular letter refers to ‘transactions’ rather than to ‘relations’ as per Article 9 of the OECD Model Tax Convention).
As a final key takeaway, we note that the BTA includes a specific Chapter X on financial transactions referring to the recently published OECD report (February 2020) on this matter. This Chapter X of the circular letter is said to be entering into force as of 1 January 2020 notwithstanding the OECD report was only published formally in February 2020. Further commentary will follow on this topic. Regarding the circular letter itself, we already note that paragraph 267 – on a cash pooling transaction being short term and a measurement of structural positions being 12 months – is a prime example of where an incorrect definition of the arm’s length principle may lead to. A cash pool transaction may be short term indeed, a cash pool arrangement however, may constitute a longer term relation implying a different assessment method.
Finally, we note that a circular letter is only binding for the Tax Authorities, not for taxpayers. Thus, a taxpayer is not obliged to follow the circular letter, and certainly not if the circular Letter seems to be contra legem, or wrongly interprets the OECD Guidelines.
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