On 10 December 2019, the draft repair act containing various changes to the 30% EBITDA rule has been withdrawn from the chamber leaving taxpayers in uncertainty on the application of the rule.
However on 27 December 2019, a Royal Decree related to the 30% EBITDA rule has been published. The Royal Decree includes some of the changes initially included in the repair act.
The main changes in the Royal Decree relate to the following:
- The concept of economically equivalent interests;
- Allocation of negative EBITDA; and
- Allocation of EUR 3 mio threshold.
(i) Economically equivalent interests
The 30% EBITDA rule states that income/costs economically equivalent to interest need to be taken into account when computing the excess borrowing costs. Until now, guidance regarding the scope of “economically equivalent interests” was lacking. The Royal Decree provides such guidance by listing different types of income and costs which can be considered economically equivalent to interest.
(ii) Allocation of negative EBITDA
The Royal Decree also significantly changes the computation of the deduction capacity by introducing an obligation for group entities with a negative EBITDA to allocate this negative EBITDA to all other Belgian group members with a positive EBITDA in proportion to this positive EBITDA. The legislator confirms this step is needed in order to ensure an application of the EBITDA rule on an overall ‘consolidated’ basis.
It is important to mention that, unlike the draft bill, the Royal Decree does not foresee in the allocation of negative excess borrowing costs between group entities.
(iii) Allocation of EUR 3 mio threshold
Subsequently, the Royal Decree foresees in two specific methods to allocate the 3 million threshold amongst Belgian group entities:
- A complex, mixed allocation based partially on the 30% of the group EBITDA, and partially of an allocation of the 3 mio limiting amount. The Royal Decree seems to indicate that this method can be simplified if the group opts to collectively waive its right to calculate the tax EBITDA. In such a case, the limiting amount of 3 mio can be allocated to the amount of the positive exceeding borrowing costs of each Belgian group member;
- An equal allocation between all group members.
Because of the new rules, members of a group will have to test on a “consolidated” level which of the two thresholds is the greatest.
More information on the content of the draft bill and the postponement can be found in our previous newsflashes of 29 November 2019 and 11 December 2019.
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 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 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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