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Friday, 13 March 2020

ATAD interest limitation rules finally implemented in Belgium

A long-awaited Royal Decree on the interest limitation rules provided by the Anti-Tax Avoidance Directive (‘ATAD’) was published just before the year-end (Belgian State Gazette of December 27, 2019). This was necessary, because the previously-enacted legal framework (the Law of December 25, 2017 and the Law of July 30, 2018) had left some important modalities open to be adopted by Royal Decree. Thanks to the Royal Decree’s ‘last-minute’ publication, the interest limitation rules can now apply as of tax year 2020, as required by the ATAD.

Under the ATAD interest limitation rules, exceeding borrowing cost is disallowed to the extent that it exceeds either € 3 million, or 30% of the tax-adjusted EBITDA.

Exceeding borrowing cost

The notion of ‘exceeding borrowing cost’ is defined as an entity’s net funding cost, i.e. the difference between borrowing cost and interest revenues, it being understood that not only actual interest payments, but also ‘economically equivalent payments’ must be taken into account. According to the Royal Decree, amortization of capitalized interest (interest cost included in an asset’s acquisition value), exchange gains/losses recognized regarding interest payments, certain guarantee and closing fees, as well as a discount on long-term low- or no-interest bearing loans, must in principle be considered as ‘economically equivalent’ to interest payments and, therefore, be assimilated to interest.

Importantly, interest paid/received in respect of ‘old’ loans (i.e. loans concluded prior to July 17, 2016) are ‘grandfathered’, unless if ‘fundamentally changed’ as from that date. Such ‘grandfathered’ loans are not subject to the ATAD interest limitation rules, but remain subject to the ‘old’ 5:1 debt/equity ratio (if ‘intra-group’). In addition, loans concluded in execution of a ‘Public-Private Partnership’ are excluded from the ATAD interest limitation rules as well.

Intra-group adjustments

The Royal Decree also provides some important clarifications on how the interest limitation rules apply for (Belgian) groups. The basic principle in this respect is that the calculation of exceeding borrowing cost and EBITDA is, at least in the first instance, to be made on a legal entity basis.

However, for the calculation of exceeding borrowing cost, intra-group interest (and ‘equivalent’) payments between Belgian entities (that are not excluded from the application of the ATAD rule) are disregarded.

In addition, the EBITDA must be adjusted for inter-company payments between Belgian entities that have been part of the same group during the entire taxable period. The purpose of such intercompany adjustments is to ‘simulate’ the effects of tax consolidation, despite the fact that Belgium did not opt for the group-EBITDA approach available under the Directive. Such intercompany adjustments must not be made, however, for intercompany interest (and ‘economically equivalent’) payments between Belgian group members (although it must be said that the wording of the law is not clear in this respect).

How to deal with negative values?

The Royal Decree of December 20, 2019 also provides that negative EBITDA amounts of Belgian group entities must be deducted against positive EBITDA amounts of other Belgian group members proportionally to the positive EBITDA amounts (i.e. the group entity with the highest positive EBITDA absorbs the higher part of the total negative EBITDA). Such imputation reduces the overall interest capacity of the (Belgian) group.

Conversely, one would have expected that a negative exceeding borrowing cost at the level of a Belgian group entity (i.e. higher interest revenue than interest expenses) would increase the interest capacity of other Belgian group members, either by reducing their exceeding borrowing cost, or by increasing their interest deductibility threshold. However, a measure to this effect, albeit present in a former draft, has not been adopted. This can, for example, be problematic for groups with a Belgian finance company contracting loans from affiliated Belgian companies, and on-lending to foreign group entities. As interest paid on the former (received) loans is disregarded (because it is paid to Belgian affiliated entities), whereas interest received on the latter (granted) loans is to be taken into account in calculating the exceeding borrowing cost, the group company may end up with a negative exceeding borrowing cost.

Practical approach

Given the EBITDA calculation’s high complexity, the Royal Decree provides the option for Belgian group companies of collectively waiving any such calculation. In that case, the interest capacity of the group members will exclusively depend on the € 3 million threshold, which will then be allocated to the Belgian group companies proportionately to the level of their respective exceeding borrowing cost (or, subject to an agreement being annexed to their corporate income tax return, to each Belgian company for an equal part). This simplified calculation will in principle be the appropriate method if either the Belgian group’s overall exceeding borrowing cost is below € 3 million, or its overall EBITDA at Belgian group level is below € 10 million (and, therefore, 30% of this overall EBITDA is below the € 3 million threshold). In all other cases, the detailed EBITDA calculation will in principle result in a higher interest capacity at group level.

Whether the simplified method or the detailed EBITDA calculation is applied, interest deduction agreements can be concluded between group members on a bilateral basis in order to shift interest capacity from an entity with excess interest capacity (i.e. where the threshold exceeds the exceeding borrowing cost) to a company with an interest capacity deficit (i.e. where the exceeding borrowing cost is higher than the threshold).


It is fair to say that the Belgian legislator has developed a highly technical set of rules to implement the interest limitation required by ATAD. To assist our clients as efficiently as possible, we have developed a tool (calculation sheet) that enables us to achieve an optimal allocation of interest capacity, even for groups that have a very considerable number of entities in Belgium. Regrettably, however, some interpretation issues have not been clarified at this stage (for example, in the event of joint ventures under ‘joint control’).

Of course our team would be more than happy to assist you.

Ivo Vande Velde – Counsel (

Gilles Van Namen – Senior Associate (

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