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Belgium: Guidance on “grandfather rule” under earnings stripping regime

Belgium: Guidance on “grandfather rule”

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.

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Fundamental change

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:

  • A change in duration, interest rate or interest calculation not foreseen by a contract entered into before 17 June 2016
  • A change or replacement of one or more of the original involved parties, except for a change or replacement of an original lender which was foreseen by contract entered into before 17 June 2016
  • A change in the amount borrowed
  • Any change imposed by a legislative or supervisory authority

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:

  • A change in duration that was foreseen by a contract entered into before 17 June 2016 and that flows from an automatic extension
  • A change in interest rate or interest calculation that was foreseen by a contract entered into before 17 June 2016
  • A change in the modalities for paying the interest (for example, quarterly instead of monthly payment)
  • A change in the original guarantee (when the identity of the guarantor changes, the circumstances in which the change happens must be considered in order to determine whether that change is fundamental or not)

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

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