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Thursday, 16 September 2021

International Tax update: Belgian Transfer Pricing Court Case

In a recently published decision dd. 8 June 2021 of the Court of Appeal of Ghent relating to transfer pricing (nr. 2016/AR/455), the Court decided in favor of the taxpayer. The case originated from an audit initiated by the Special Investigation Squad (BBI/ISI) in 2009.

Considering transfer pricing cases in Belgium are scarce, it is interesting to see the Court’s point of view on certain transfer pricing matters, in particular as judges in Belgium are not specialized in transfer pricing matters. Furthermore, the number of transfer pricing audits in Belgium has only increased in recent years, a trend that may be reflected in court cases going forward. On an international level, an increase in the number of court cases relating to transfer pricing can also be observed. In this article, we summarize the key elements of the case and present our key takeaways that may be relevant for companies dealing with or would like to prepare for transfer pricing audits.

An important element from this decision concerns the legal discussion on the application of the appropriate version of the OECD Transfer Pricing Guidelines (“OECD TPG”). In the case at hand, the tax administration based certain argumentation on the 2017 OECD TPG. However, this version of the guidelines was not yet available in the relevant tax years under audit. Therefore, the Court correctly states that the 1995 OECD TPG should have been considered, and later versions of the OECD TPG should only be used to the extent that they relate to clarifications of these guidelines, and do not impact in any way, even implicitly, whatsoever the content thereof. It was decided by the Court that the tax administration should not have based its argumentation on newly introduced elements in the 2017 OECD TPG, in casu DEMPE (Development, Enhancement, Maintenance, Protection and Exploitation relating to intangible assets) and ex-post price adjustments for hard-to-value intangibles. Reference is also made by the Court to the Transfer Pricing Circular Letter 2020/C/35 (25 February 2020) in which it is explicitly stated by the tax administration that the content is only applicable for transactions occurring as of 1 January 2018. In this respect it should be emphasized that a circular letter is only considered binding for the tax authorities, not for the taxpayer, nor for a judge. It should be noted that the Court made this statement relating to the use of the DEMPE concept in view of using the relevant OECD TPG version, whereas - further in the decision - it states that the (regular) functional analysis is relevant for assessing transfer pricing matters (which was already included in the 1995 OECD TPG).

Furthermore, the decision of the Court highlights some other interesting elements. 

  • Burden of proof: As the tax administration based its argumentation on Article 26 ITC 92, it must demonstrate the existence and the extent of an abnormal or benevolent advantage granted and it should do so based on a functional analysis and a comparability analysis to support its standpoint of what would be the arm’s length pricing in comparable circumstances. In the case at hand, the Court decided that the tax administration did not provide sufficient proof to justify its position. The tax administration did not prove that the main functions were performed, or key risks were incurred by the Belgian entity, and no results have been presented of a comparability analysis of an arm’s length pricing for the case at hand.
  • Importance of internal documents: The lack of proof that was presented by the tax administration was countered by various documents of the taxpayer, such as intercompany agreements, intercompany invoicing, contracting of sub-contractors and board of directors’ meetings. The Court ruled that the content of certain documents demonstrated that relevant functions were performed by the foreign entity. Therefore, the value of written documents should not be underestimated.
  • Rejection of tax losses: The tax administration rejected the deduction of carried forward tax losses, by arguing that losses must have originated from the Belgian company being under-remunerated in view of its functionality. In the case at hand, the losses originated from a financial year after the period challenged by the tax administration as demonstrated by the taxpayer. In addition, the tax administration cannot reject carried forward tax losses on the grounds of additional income that would have been earned at arm’s length in previous tax years, as it must be assessed on a year-by-year basis, and therefore the Court rejected the position of the tax administration and labelled it as being arbitrary.

In practice, we often observe similar elements during transfer pricing audits. It is therefore key to consider transfer pricing and all procedural aspects during all phases of the audit. In our experience, many topics and specifically the rejection of losses can be tackled in an earlier stage in the audit process to prevent them from going to Court.

From this Court case, our key takeaways are:

  • Taxpayers should determine transfer pricing policies based on relevant regulation and guidance available at the time of the intercompany transaction.
  • Taxpayers should always consider which party carries the burden of proof and the tax administration should thoroughly support positions taken with sufficient proof.
  • The tax administration should not attempt to reject carried forward tax losses in one go without an in-depth analysis on the reasons of the losses or considering the relevant facts and circumstances.
  • It is recommended that taxpayers prepare appropriate internal documents that can support their transfer pricing policy. For example, a functional analysis can be further supported (on top of transfer pricing documentation) with intercompany agreements, internal policy documents, meeting minutes, documentation of decision-making, correspondence, etc.

For more information on the process of transfer pricing audits in Belgium and more recommendations on how you can prepare for them, we refer to our new website dedicated to the topic:          

Ben Plessers - Senior Manager at Tiberghien economics (

Heleen Van Baelen - Senior Manager at Tiberghien economics (

Tiberghien’s international tax team will continue to monitor these and other tax developments relevant for Belgium / Luxembourg based multinational enterprises. Our editorial board consists of:

Koen Morbée (International and EU corporate tax,;

Michiel Boeren (International and EU corporate tax,;

Katrien Bollen (HR tax and global mobility,;

Ben Plessers (Transfer Pricing and Valuations,;

Gert Vranckx (VAT, customs, excises and other indirect taxes,;

Rik Smet (International and EU corporate tax,

In case you have further questions on this publication or want to discuss a tax query, please do not hesitate to contact the author(s) or one of the members of the editorial board.

This newsflash is for information purposes only and cannot be relied upon as legal advice.

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