New reporting obligations
A Royal Decree dated August 10 2009 (published in the Belgian Official Gazette of August 24 2009) instructs corporations in Belgium to report all material non-arm’s length intercompany transactions in their annual accounts. No further guidance is provided on what results in a transaction being material.
Extensive reporting obligations apply to corporations listed on a stock exchange or traded on a multilateral trading facility and those that meet more than one of the criteria for being considered a large group (as defined in the Belgian Companies Code). These corporations should report this information about the qualifying transactions:
· the amounts involved in the transactions;
· the nature of the relationship with the related parties; and
· any other information that is needed to obtain an accurate view on the financial situation of the corporation.
The other corporations only have to report direct and indirect transactions between the corporation and its major shareholders and its leadership (for example, the members of the board of directors).
The nature and the business purpose of material off-balance sheet arrangements of which the risks and benefits may influence (the assessment of) the financial situation of a corporation will also have to be reported in the financial accounts. In addition, the corporations subject to the extensive reporting obligations for intercompany transactions will have to quantify the financial impact of the off-balance sheet arrangements on their financial situation.
These new reporting obligations, both for the intercompany transactions and for the off-balance sheet arrangements, apply to financial years starting on or after September 1 2008.
Documenting the arm’s-length character of intercompany transactions and the nature and business purpose of off-balance sheet arrangements and meeting the related new reporting obligations will be of importance to protect the rights of the corporation’s executives responsible for (and involved in the drafting of) the financial accounts Furthermore, corporations will have to demonstrate towards their Belgian statutory auditor that the corporation was not involved in material non-arm’s-length intercompany transactions and/or in abnormal off-balance sheet arrangements to obtain sign-off on the financial accounts.
Disclosures in FIN 48 reports
The Belgian tax authorities have revealed that they will start using the disclosures made by groups in FIN 48 reports to select groups present in Belgium for an audit by the special transfer pricing audit department. This unit was set up late 2004 and consists of Belgian tax inspectors specialised in transfer pricing matters.
Multinational groups present in Belgium and having disclosed tax contingencies resulting from transfer pricing matters should prepare themselves for the fact that they will receive an extensive questionnaire from the special transfer pricing audit department on their transfer prices.
Having filed the answers to the questions raised in this questionnaire, the corporations will be subjected to several visits from the special transfer pricing audit department and will have to make a significant investment to avoid transfer pricing adjustments.
Dirk Van Stappen (dvanstappen@kpmg.com)
