BELGIUM Trends and Developments Contributed by: Aldo Engels, Emile Bauwens, Emma Parduyns and Vincenzo Vilardi, Loyens & Loeff
itself (ie, the second step in the burden of proof was not met). The court, however, did not end its assessment there but instead conducted its own analysis to come up with a different credit rating. Indeed, as based on the court’s analysis, not all crite - ria of the S&P Group Rating Methodology were met (referring among others to the Belgian bor - rower’s relative profitability and the group annual reports), the court concluded that the Belgian borrower should be classified as “highly strate- gic subsidiary” , of which the stand-alone credit rating should be one notch below the credit rat - ing of Group. The court then allowed the BTA to determine a new interest rate based on the outcome of the court’s credit rating analysis and issue a new tax assessment on that basis. The court thereby brought some nuance to the (high) twofold burden of proof on the BTA by giving the BTA a second chance to come up with the correct price based on the credit rating as deter - mined by the court. Share capital contribution In a ruling of the court of appeal of Brussels, it was confirmed that the taxable base of a Belgian company can be adjusted in respect of a non- arm’s length benefit granted in the context of a share capital contribution to which the company was not legally a party. The case concerned a capital increase by a Luxembourg grandparent through the contribution of a receivable to its Belgian indirect subsidiary. The court decided that the Belgian parent company granted a non-arm’s length benefit to its Luxembourg par - ent as it agreed to a capital increase at a price per share well below the market value thereof. It stated that as a result, the Belgian parent’s wealth decreased through the dilution of its participation in its Belgian subsidiary and the Luxembourg grandparent’s wealth increased as
it acquired a participation at a value exceeding that of the contributed receivable. Based on the foregoing, the court concluded that the trans - fer of value from the Belgian parent to the Lux - embourg grandparent constitutes a non-arm’s length benefit to be added to the Belgian par - A recent ruling concerned a Belgian company that paid a 12.5% royalty on turnover for the licence of a brand to a related Luxembourg company. According to the BTA, the Luxem - bourg licensor did not perform any DEMPE func - tions relating to the brand and should therefore only be entitled to a cost-plus return. The court rejected this approach and considered the tax assessment as arbitrary. The court notably con - sidered that a tax assessment cannot be solely based on OECD Guidelines as these are not mandatory law. In addition, the tax assessments relate to FY2015 and 2016; ie, the years prior to the publication of the 2017 OECD Guidelines incorporating the DEMPE concept (ie, prohibi - tion of retroactive application of new versions of the OECD Guidelines). Finally, inspired by the EU Amazon case, the court rejected the position that the Luxembourg licensor was merely acting as a passive IP owner as, according to the court, by licensing its IP, the licensor indeed actively exploits the IP and should receive a market- based consideration in return. Noteworthy Rulings Ruling on hard-to-value intangibles The Ruling Commission rendered a ruling about the licensing of intellectual property (IP) which is still in its development phase and qualifying as a hard-to-value intangible (HTVI) according to the OECD Guidelines and the TP Circular. ent’s taxable basis. DEMPE approach
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