Tiberghien Economics
Tiberghien Lawyers
You are here:I want to prepare for a TP Audit::Circular Letter 2020/C/35

Circular Letter 2020/C/35

The Belgian tax authorities published the Circular Letter “Transfer Pricing” (Circular Letter 2020/C/35) dd. 25 February 2020 with the purpose to provide an overview of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (“OECD TP Guidelines”) in combination with stressing out the preference of the Belgian tax authorities in the application thereof, when considered useful and appropriate.

In this section, we will provide an overview of our key comments on this Circular Letter, with a particular focus on items of relevance for the TP audit procedures or at least to be taken into account when one would like to prepare for a TP audit procedure.


:: Timing – entry into force

The entry into force of this Circular Letter is a crucial topic as, although the OECD TP Guidelines can only be characterized as 'soft law’, these OECD TP Guidelines (both the 2017 version of the OECD TP Guidelines on which’ principles the Circular Letter inscribes, and given the position stated in the latter that the Belgian tax authorities will abide by subsequent changes in the OECD TP Guidelines – i.e. later versions) are considered as important guidelines for both the Belgian tax authorities and the taxpayer with regard to transfer pricing, especially given that this matter is only described in 'hard law' to a limited extend. In its judgement of 8 June 2021, the Court of Appeal of Ghent explicitly restated that the OECD TP Guidelines, as such, do not have direct (legal) effect in Belgium and constitute a non-binding instrument. Moreover, fundamental and far-reaching updates in a number of areas made to the 2017 edition (and the subsequent consolidation of the changes to the 2017 OECD TP Guidelines in the January 2022 edition) are also relevant for the Belgian authorities and taxpayer to assess whether or not to take into account.

A retroactive implementation of the latest version of the OECD TP Guidelines (i.e. the July 2017 edition) was heavily debated. However, the Circular Letter stipulates that it is only applicable with regard to intercompany transactions taking place as of 1 January 2018. However, certain paragraphs - that, in general, concern the interpretation of the Belgian tax authorities, or a Belgian-specific consideration - will only enter into force as from 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 OECD TP Guidelines, and hence constitute an interpretation, still remain in place – most notably paragraphs 16 (Belgium-specific and opinion), 17 (opinion), 21 (opinion), 38 (Belgium-specific), 59 (Belgium-specific and opinion), 68 (policy), 89 (opinion impacting burden of proof), 107 (policy line putting an incremental burden on reviewing comparables for source of loss) and 125 (opinion).

In conclusion, we wish to note that retroactivity as such is based on strict principles (confirmed by the case law of the Belgian Constitutional Court) in case of legislation. However, royal/ministerial decrees and Circular Letter’s cannot be applied in a retroactive way, under penalty of the infringement of the principles of good administration. Therefore, taxpayers may consider developing procedural as well as economic argumentation when reference is made to this Circular Letter by the tax authorities in their advantage. With regard to the question whether the OECD TP Guidelines can be applied retroactively, in its judgement of 8 June 2021, the Court of Appeal of Ghent ruled that the OECD TP Guidelines (i.c. the July 2017 version) cannot be applied retroactively and that only the economic context and legal framework of the period to which the facts at hand relate to should be considered. Furthermore, the Court of Appeal of Ghent also stated that the most recent version of the OECD TP Guidelines may only be used to the extent that they provide (mere) useful clarifications of the existing OECD TP Guidelines, without any further elaboration.

:: OECD TP Guidelines

In the introduction to the Circular Letter, the Belgian tax authorities state that the aim is to provide an overview of the 2017 OECD TP Guidelines, which is necessarily a mere summary of the more than 600 pages extensive 2017 OECD TP Guidelines. A summary of such an extensive document has the - logical but unfortunate - consequence that many nuances contained in the 2017 OECD TP are likely to be lost, which, in our opinion, is also the case for this Circular Letter. Moreover, the 2017 OECD TP Guidelines is written in English (and also available in French, Spanish, Turkish, German, Czech and Chinese – and the January 2022 version of the OECD TP Guidelines is also available in French, Chinese, Czech, German, Hungarian, Italian, Serbian, Slovene, Spanish, Turkish, Ukrainian), but there is no official or unofficial translation of it into Dutch. By translating parts of the original text into Dutch, important elements and nuances are again lost. The tax authorities has failed to state explicitly and unambiguously that it is bound to comply with the integral version of the 2017 OECD TP Guidelines.

One of the fundamental discrepancies between the (literal) reading of the 2017 OECD TP 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 that contains a discrepancy as the Circular Letter refers to ‘transactions’ rather than to ‘relations’ as article 9 of the OECD Model Tax Convention does so.

:: Financial transactions

As final key takeaway, we note that, in the Circular Letter, the Belgian tax authorities have opted to include a specific chapter X on financial transactions referring to the OECD report on this matter (i.e. the OECD Transfer Pricing Guidance on Financial Transactions – inclusive framework on BEPS: Actions 4, 8-10, published in February 2020) which is also consolidated into the January 2022 version of the OECD TP Guidelines. This chapter X of the Circular Letter is said to be only entering into force as from 1 January 2020 notwithstanding the OECD report on this matter was only published formally in February 2020 (see our earlier thoughts on retroactivity). To highlight one point of this topic in respect of the Circular Letter itself, we note that in our opinion 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 a wrong definition of the arm’s length principle (cf. our above) may lead to. A cash pool transaction may be a short-term transaction indeed. On the other hand, a cash pool arrangement may constitute a longer term relation, and therefore there should not be a mechanical measurement of the structural nature of a cash pool but rather an assessment of the specific facts and circumstances and options realistically available to all parties concerned in a more holistic manner. More interesting reading on intragroup financing is to be found here. In addition, our comments on the (draft) non-consensus document of the OECD, which has been subject to (many) public comments in due course of 2018, are available here.

:: Interference with burden of proof

As already indicated, the aim of the 2017 OECD TP Guidelines is to provide a comprehensive framework to serve as a guidance on transfer pricing matters for both the tax authorities and the taxpayer, whereby the 2017 OECD TP Guidelines (can) provide various possibilities in terms of applicability to a given situation. The interpretation of the tax authorities, when considered useful and appropriate, is reflected throughout the Circular Letter. It should be noted that, a "(fixed) interpretation of the tax authorities", given the cross-border nature of transfer pricing, is a potential source of incremental problems regarding double taxation. In our opinion it is preferable to have an expression of certain preferences compared to a (fixed) interpretation, and that transfer pricing should be assessed against the integral 2017 OECD TP Guidelines. Moreover, both the 2017 OECD TP Guidelines and the Circular Letter are only ‘soft law’ and therefore not legally enforceable and Belgian law ('hard law') prevails. This is particularly important regarding the burden of proof.

A (normative) standpoint taken by the tax authorities by means of a Circular Letter cannot have the reversal of the burden of proof not as an objective nor as a consequence.

In the Circular Letter, the tax authorities take for instance the position that in case of group synergies such as procurement, the conditions realised must benefit the members of the group and the procurement activities must be remunerated with a profit margin on the operational costs. The assumption that a procurement center has no or only a limited value-added character detracts the reality and places the burden of proof in the hands of the taxpayer. Moreover, such a position of the Belgian tax authorities undermines the legal certainty for a Belgian taxpayer.

Tiberghien Brussels

Tour & Taxis

Havenlaan|Avenue du Port 86C B.419
BE-1000 Brussels
T +32 2 773 40 00
F +32 2 773 40 55


Tiberghien Antwerp

Grotesteenweg 214 B.4
BE-2600 Antwerp
T +32 3 443 20 00
F +32 3 443 20 20


Tiberghien Ghent

Esplanade Oscar Van de Voorde 1
BE-9000 Gent
T +32 9 216 18 00


Tiberghien Hasselt

Torenplein 7 B.13
BE-3500 Hasselt
T +32 11 57 00 13


Tiberghien Luxembourg

23, Boulevard Joseph II
LU-1840 Luxembourg
T +352 27 47 51 11
F +352 27 47 51 10