The tax authorities released a circular letter that, in part, addresses the “grandfather rule” for certain loans under the new earnings stripping regime. The guidance also addresses other aspects of the earnings stripping regime, but these are not described in this report.
Under the “grandfather rule,” interest on loans concluded before 17 June 2016 can be excluded from the calculation of the excess borrowing costs if those loans have not been subject to a “fundamental change” as of that date. According to the circular letter, a fundamental change includes a change in parties, interest rate, loan duration or amount that is borrowed. The refinancing of an old loan, therefore, is considered to be a fundamental change. Also, there is a fundamental change when there is a debt renewal (if within the meaning of article 1271 of the Civil Code (or its foreign equivalent)).
The determination as to whether there is a fundamental change must be made on a case-by-case basis. The circular letter enumerates a number of changes that are considered to be fundamental changes, whether or not there is an (explicit) consent or agreement from (one of) the involved parties. These include:
As a result, all interest on a loan that relates to the period as from the date of the fundamental change, must be taken into account for purposes of the interest deduction limitation.
The circular letter also provides a non-exclusive list of changes that are not considered to be fundamental changes, including:
The new earnings stripping rules were effective 1 January 2019 and apply as from AY 2020 linked to a tax period starting at the earliest on that date. Any change to the closing date of the financial year as from 26 July 2017 remains without effect for the application of the interest deduction limitation.
Read a September 2019 report prepared by the KPMG member firm in Belgium
© 2021 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.