On 11 September 2019, the Belgian tax administration published a Circular Letter regarding the grandfathering provision that is included in the recently introduced interest deductibility limitation (i.e. 30% EBITDA rule).
The 30% EBITDA rule includes a grandfathering provision for loans that have been issued before 17 June 2016 and that have not been “fundamentally modified” since that date. The interest income/expenses on these loans are not taken into account for purposes of the 30% EBITDA interest deduction limitation rule. Nevertheless, the current legislative framework does not define the notion of “fundamental modification”.
What is in there?
The circular letter provides guidance on the interpretation of the notion “fundamental modifications”. In this circular the Belgian tax administration outlines a non-exhaustive list of specific modifications that are considered fundamental and on the contrary a list of modifications that are considered as non fundamental. Nevertheless, the circular letter states that case-by-case analysis will be necessary if a specific modification to a loan should be considered as “fundamental”.
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 the complex underlying interest cap calculations and assess optimization opportunities (i.e. transfers of EBITDA capacity / group contributions) in-house. Indeed, the tool not only automates the calculations and estimations of cash tax effects, but also allows to conduct 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 you 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 the people listed below or via the following email address firstname.lastname@example.org.
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