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
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