Industrial activities are becoming increasingly more international. Companies often operate in various countries to facilitate the design, production, storage, sale, etc. of their products or the rendering of services.
Enterprises are not always averse to using such diversity to shift their profits to some of these countries, particularly to those where the tax climate offers them certain fiscal advantages (e.g., lower tax rates). This, of course, does not escape the attention of local authorities and tax administrations. In order to combat misuse of such avenues, international agreements have been concluded concerning a pricing method known as Transfer Pricing (OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations).
By means of such Transfer Pricing, a set of arm’s length prices needs to be established for reciprocal transactions amongst a group of associated enterprises (multinationals), whereby each country is assigned a legitimate tax base.

Transfer Pricing: arm’s length principle

How then is that correct price to be established?
In order to determine the correct price for a given service or goods delivery amongst associated companies, the so-called “arm’s length principle” has been adopted.
This means that the prices used amongst associated companies within a group are those prices that are used by mutually independent enterprises for similar services or deliveries of goods.
Nonetheless, the determination of the transfer price is no easy task. In this respect, the OECD already in the past established directives (art. 9.1 OECD Model Convention) that have been implemented in many nations.
In Belgium, the arm’s length principle is contained in article 185, §2 of the Income Tax Code 1992. From administrative directives (and not unimportantly: their practical applications) it appears that he OECD regulations for Transfer Pricing are generally being complied with.

Transfer Pricing: BEPS

Likewise within the context of the BEPS (Base Erosion and Profit Shifting) action plan, Transfer Pricing plays an important role.
On 5 October 2015, the OECD published its final plan with recommendations for combating tax evasion by multinational corporations.
The BEPS plan forces corporations that are actively engaged in international business to display greater substance, transparency, and coherence in the conduct of their (complex) economic business transactions.
Belgium too has undertaken to incorporate this BEPS action plan into its national legislation. The Programme Law of 1 July 2016 already regulates the practical implementation of action point 13 concerning the documentation requirements imposed by Belgian legislative provisions.


Given the increased globalisation and the combat against fiscal fraud, Transfer Pricing has become a hot topic. Not only major multinationals but also smaller companies will need to take account of ever increasing pressures and scrutiny on unauthorised profit shifting.
aternio will keep you abreast of future developments.