On 10 July 2020 a new Circular letter was published regarding the 30% EBITDA regulation (Dutch/French version).The Circular is intended to provide some additional clarifications on remaining ambiguities on the 30% EBITDA regulation, as contained in Article 198/1 BITC 92 and Article 73 RD/BITC. These clarifications are highly technical in nature and underscore again that the Belgian 30% EBITDA rule is overly complex.
The Circular contains further explanations regarding the following topics:
- No allocation of negative exceeding borrowing costs (“EBC”);
- Impact of being part of a group for the determination of the EBC;
- Elimination of intra-group transactions for computation of tax EBITDA;
- Joint ventures.
(i) Allocation of negative EBC
The Circular confirms that a negative EBC of one (or more) Belgian group entity(ies) cannot be offset against a positive EBC of other group members. Indeed, the current law only provides for a transfer of excess EBITDA capacity, not of negative EBC.
(ii) Entities being part of a group for only a part of the taxable period
To determine the EBC, interest and costs (or income) that are economically equivalent to interest should be eliminated if they are payable to (or by) a Belgian group entity. The Circular indicates that the companies concerned should not be part of the group for the whole taxable period. It is sufficient that the companies concerned are associated companies during the period to which the payments relate.
It is important to note that being part of the group for the whole taxable period is still required for the proportional allocation of the EUR 3 Mio, the elimination of intercompany transactions between Belgian group entities when determining the tax EBITDA, and for the conclusion of intercompany agreements to transfer excess EBITDA capacity.
(iii) Decrease in stock
In the event a decrease in value of the stock of goods is not booked as an impairment (Article 198/1, §3, (2), second indent BITC 92) but instead is booked as a decrease in stock (account 609), it may not be added back to the first movement when calculating the Tax EBITDA. This position is based on a strict reading of the law.
(iv) Intra-group interest payments
For the calculation of the Tax EBITDA of the taxpayer who is part of a group of companies, no adjustment needs to be made for interest or costs (or income) which are economically equivalent to interest and that are payable to (or by) Belgian group companies. In other words, in order to determine the Tax EBITDA of that taxpayer, an adjustment must be made for intra-group costs and revenues that are payable to or by a Belgian group company, with the exception of interest and costs (or revenues) that are economically equivalent to interest.
The law was ambiguous on this point. While there can be other interpretations of the law on this point, the Circular has the merit that it clearly points out the position of the tax authorities.
(v) Intra-group eliminations
In the Circular, the tax administration also indicates that intra-group transactions only need to be eliminated to the extent they have effectively impacted the Tax EBITDA. A first example in the Circular refers to the compensations paid under the tax consolidation regime. As such payments are disallowed expenses, no correction should be made as they are already not part of the Tax EBITDA.
In a second example, the Circular letter refers to capital gains realised on the sale of an asset to a Belgian group member which will be subject to the spread taxation regime (art 47 BITC). The Circular confirms that the elimination of the gain will only take place in the year in which the reinvested assets are depreciated (i.e. in the year in which the gain realised upon the sale of the asset is partially taken into account as taxable income). Elimination will hence not occur in the year in which the gain is effectively realised (as the gain will not be part of the taxable income due to the spread taxation regime).
Despite the clarification given by this example, many other questions still exist with respect to the application of the intra-group eliminations, which do not always seem to coincide with the principles of a genuine accounting consolidation. This example also demonstrates that groups will need to keep track of their intra-group transactions for many subsequent years (e.g. also in case of amortised interest). For many groups, the compliance efforts will increase dramatically.
(vi) Joint ventures
As regards joint ventures, the Belgian tax authorities take the position that – despite the potential ‘joint control’ on the basis of article Article 1:18, 1 Company Code – joint ventures should be considered as a separate entity / group for the 30% EBITDA rule. As such, the joint venture will be regarded as either a separate taxpayer (potentially subject to the rule of article 198/1, §6 14°) or – in case the joint venture has subsidiaries – as a seperate group.
How can we assist you?
Understanding the struggle of multinationals trying to assess and deal with the impact of the measures, PwC has developed a web-based solution, named ILIA (Interest Limitation Insights & Analytics), that enables clients to perform these complex underlying calculations and assess optimization opportunities in-house. ILIA not only automates the calculations and makes estimations of cash tax effects, but also allows real-time EBITDA capacity transfers and group contributions transfers. In addition, it allows for certain modelling features to assess the impact of new financing structures, updated business plans etc. As ILIA is web-based, the simulations can be performed and stored efficiently in a user-friendly environment.
We would be happy to give you a live demo to show how ILIA can help you and your organisation to manage the impact of these new rules. Feel free to contact us to schedule a live demo, via David Ledure or via the following email address firstname.lastname@example.org.
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