Tiberghien Economics
Tiberghien Lawyers

Special case: “Structural” losses

Frequently observed issues

  • One of the main ‘red flags’ to trigger audits is when a taxpayer suffers (operating) losses for several (consecutive) years.

  • Belgian tax authorities often attempt to qualify these as structural losses resulting from underlying issues with the transfer prices applied.

  • Attempts are often made to reduce existing tax losses carried forward to “zero” in one go without an in-depth analysis on the reasons of the losses or considering the relevant facts and circumstances.

  • The OECD TP Guidelines are used - often incorrectly – as argumentation that certain taxpayers should not incur (consecutive) losses.

  • Statements are often made that the losses are of the benefit of other parties of the group or for the group as a whole, but should not be incurred by the Belgian taxpayer.

Why is this problematic?

  • Where (operating) losses could indeed be an indication that transfer prices were incorrect, it should never be a rule that certain taxpayers should never incur losses.

  • The reasons for losses very much depend on the company, the sector in which the company/group operates, specific local market conditions/regulations, etc. and therefore always require a case-by-base, detailed analysis.

  • The OECD TP Guidelines should be interpreted correctly, the main discussion point in practice is a third party that is incurring losses would eventually cease to undertake business on such terms that result in the loss. Hence, amongst others business decisions attempting to realize turnarounds and options realistically available should    be assessed!

  • The structural nature of losses should be assessed on a long-term perspective and cyclicality of business. Using hindsight cannot be allowed as this is not in line with the arm’s length principle.

  • The mere fact that a taxpayer is characterized as “limited risk” should not de facto result in concluding that it cannot incur losses.

  • Procedural aspects, such as statute of limitation and legal basis for rejecting tax losses carried forward should always be followed.


  • Document and present key business decisions that are made / rationale in view of turning around loss-making or bad performing activities considering economic circumstance as well as a detailed build-up of losses per financial year

  • Assess the legal basis of claims made by the tax authorities and keep track of previous tax audits outcomes (as they may have confirmed certain historic losses at some point in time)

  • Consider the relevant sections of the OECD TP Guidelines in preparation of replies to the tax authorities


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