Belgium: New thin cap rule
Belgium has joined most other countries by adopting a new thin capitalisation rule, so that intercompany interest payments are now only partially tax-deductible. Unlike most other jurisdictions, Belgium did not previously have a general thin cap rule.
Interest payments made to a low tax beneficiary have previously been disallowed for Belgium corporate tax purposes to the extent that the tainted debt exceeds seven times the sum of a Belgian company’s fiscal equity.
The 7/1 limit has been reduced to a 5/1 ceiling, which is competitive with other foreign tax regimes. The rule applies to all intercompany interest payments, even when the beneficiary is not based in a tax haven jurisdiction.
Where the core business of a group consists of financial transactions, i.e. banking, insurance or factoring etc, intercompany loans will not be affected by the new 5/1 thin cap rule.
A so-called ‘anti-channeling’ rule has also been introduced which means that only the beneficial owner of the interest income should be considered to run the 5/1 thin capitalisation test.
For more information, contact:
Kurt De Haen
VMB Accountants & Tax Consultants, Belgium
Tel: +32 (0)2 460 09 60