The Law of 25 December 2017 brought substantial changes to the Belgian corporate tax system. One of the main novelties was the new 30% EBITDA interest limitation rule in line with the E.U. Anti-Tax Avoidance Directive’s (ATAD I) requirements.
The EBITDA rule limits the deduction of net interest charges to the higher of (i) EUR 3.000.000, or (ii) 30% of the taxpayer’s fiscal EBITDA. This rule contains a grandfathering clause for loans concluded prior to 17 June 2016 to the extent they have not been subject to any “fundamental change” on or after that date. Neither the Belgium Income Tax Code nor any other legal instrument define the concept of fundamental change.
On 11 September 2019, the Belgian tax administration published a first Circular Letter (available here in Dutch or French) describing how Belgian tax authorities interpret this concept when assessing the application of the grandfathering clause. The Circular specifies, for example, that a change of contracting parties, interest rate or the term (duration) of the loan, qualify as a fundamental change. It also provides a (non-exhaustive) list of fundamental and non-fundamental changes. Any debt renovation within the meaning of Article 1271 of the Civil Code or a similar foreign-law provision qualifies as a “fundamental change” (although a case-by-case analysis is required).
On 5 May 2020, the Belgian tax administration published a second Circular Letter (available here in Dutch or French) providing that the granting of specific payment holidays for loans concluded prior to 17 June 2016 does not constitute a fundamental change if:
- The taxpayer can establish that he has difficulty servicing his debt as a consequence of the COVID-19 corona crisis (g., as a result of a significant decrease in sales, or due to the temporary lockdown imposed by the Belgian federal government);
- An application for an extension of payment approved by a financial institution or included in an addendum to a loan agreement (g., for an intra-group loan) mentions the payment holidays; and
- The specific payment holidays are granted prior to 30 June 2020 and run through 31 December 2020 at the latest.
If a lender and a borrower agree to temporarily deviate from the initial terms of their contract to face temporary payment difficulties -- which would typically qualify as a “fundamental change” and therefore make the EBITDA rule applicable -- they are still within the scope of the grandfathering clause if they meet the aforementioned conditions.