As from assessment year 2020 (FY starting as from 1 January 2019) a 30% EBITDA rule limits the maximum amount of interest relief, whereby ‘exceeding borrowing costs’ are only tax deductible up to the higher of 30% of the tax-adjusted EBITDA or €3m. This de minimis rule should be calculated at Belgian group level.
Based on Belgian company law, a ‘group’ includes all Belgian portfolio companies held by a controlling shareholder or that are under ‘common control’. In this respect, the question has arisen how a 50/50 Joint Venture (JV) should be treated for application of the 30% EBITDA rule.
In general, a JV will be considered being under common control if the JV partners concluded a shareholder agreement regarding the joint exercise of the power to direct the management of the JV. In such case, the JV is considered being part the group of each of the shareholders.
In a recent ruling (not yet published), the Ruling Commission accepted that a 50/50 JV could be considered as a separate group for the 30% EBITDA rule as it could not be considered to be under common control, amongst others because the JV partners did not have any (written or oral) shareholder agreement.
But what about a JV under common control? Should it be consolidated with one or even both JV partners, or could it still be considered as a separate “group’?
In an Administrative Circular Letter of 10 July 2020 (circular 2020/C/97), the Belgian tax authorities have taken the position that – despite the potential ‘common control’ – a JV should be considered as a separate entity (or group) for the 30% EBITDA rule. As such, the JV will be regarded as either a separate taxpayer or – in case the JV has subsidiaries – as a separate group.
The Circular Letter also specifies that the definition of ‘common control’ does not imply that the control stake of each of the JV partners should be equal. It is possible that a company is under the common control of two companies of which one has 60% voting rights and the other has 40% voting rights. Therefore, also a 60/40 JV could be considered as a separate entity (or group) for the 30% EBITDA rule – and should hence not be consolidated with the 60% JV partner – if the JV is under ‘common control’ for Belgian company law purposes.