New tax avoidance rule and opportunities in Belgium – beneficial but complicated
The Belgian legislator introduced a regime of tax consolidation and implemented the interest deduction limitation according to the European Anti-Tax Avoidance Directive (ATAD).
Recently a tax consolidation regime, based on the Scandinavian group contribution regime, has been introduced in Belgium. Furthermore, the legislator implemented the interest deduction limitation in order to be EU-compliant. Both measures come into force as from tax year 2020 (i.e. linked to a taxable period starting on or after 1 January 2019).
From then on, ‘exceeding borrowing costs’ – defined as the positive difference between total interest costs and total interest profit – will only be deductible up to the higher of maximum 30% of the taxpayer’s EBITDA or EUR3 million.
Interest payments between Belgian group entities are excluded from the new rule. The EUR3m threshold must be allocated among all the group’s domestic companies and Belgian permanent establishments (of EEA group companies). Unused ‘exceeding borrowing costs’ may be carried forward and excess capacity can be transferred to another qualifying group member. The transfer will be possible under condition that an interest deduction agreement is concluded, and a tax-free compensation can be paid between the two contracting parties.
In order to catch-up with the majority of the EU-members a system of tax consolidation has been introduced in Belgium. In contrast to the Swedish regime, the Belgian regime is a pure tax measure and has no impact on the operating profit.
Only Belgian tax resident companies and permanent establishments can apply the regime if there is a direct participation of at least 90% or if the parent company, based in The European Economic Area (EEA), holds at least 90% in both entities. This participation requirement must be fulfilled for an uninterrupted period of at least five years. If the conditions are met a group contribution agreement must be concluded and a tax-free compensation must be paid to benefit from the deduction.
However, the conditions are rather strict and must be annually satisfied, the regime gives a lot of tax and cash-flow opportunities.
Maxime Vandemaele or Anthony Meul
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The question of whether a managing director, as an officer of a company, may be a permanent representative under S13 of the German Tax Code (abgabenordnung), so that a share of the profits may be taxable in the state in which the company is operating, has been controversially disputed.