On 12 January 2023, Belgium issued Circular 2023/C/8, which provides instructions on the application of the 30% of EBITDA interest deduction limitation starting from 1 January 2019, in line with the EU Anti-Tax Avoidance Directive (ATAD). A summary of the key points of the Circular is provided below:

Excluded Entities

The interest deduction limitation regime does not apply to certain companies, including:

• Taxpayers meeting the definition of financial undertakings as listed in the Circular;
• Taxpayers have sole business is related to long-term public infrastructure projects where the project operator, assets, borrowing costs, and profits are all located within the EU; and
• Single entities that are not part of a group of companies, under specific conditions outlined in the Circular.

EBITDA Adjustments

For the interest deduction limitation, EBITDA is made of the result of the taxable period, increased by:

• Depreciation and write-downs in value that are considered as business expenses for the taxable period;
• Exempt profit, which refers to the total of excess borrowing costs not considered as business expenses in previous taxable periods; and
• Excess borrowing costs, with the exception of the portion not considered as business expenses.

Thin Capitalization Rule

As part of grandfathering measures for the new interest deduction limitation, interest on “old loans” entered into before 17 June 2016 is excluded from the limitation rules. The guidance specifies that the thin capitalization rule (i.e., 5:1 ratio) still applies to such old loans when the beneficiary of the interest is part of the same group as the borrower. The thin capitalization rule is not applied to loans entered into after 17th June 2016, insofar as these loans concern beneficiaries who are part of the same group. Where applicable, the interest deduction limitation and thin capitalization rule can be applied together for loans made on or after 17^th June 2016.

Borrowing Costs

The Circular outlines an overview of the excess borrowing costs that fall under the limitation and specific costs that are considered as equivalent to interest when determining excess borrowing costs. These specific costs include:

• Depreciation costs of a tangible or intangible fixed asset, to the extent that the interest charges associated with borrowed capital are included in the acquisition value of the fixed asset.
• Decrease in inventories considered as business expenses, to the extent that interest charges associated with borrowed capital are included in the cost price of inventories and work in progress.
• Indemnification (compensation) due by a taxpayer to a foreign company within the same group of companies, which is limited to a premium for providing capital according to transfer pricing rules;
• Gains and losses from currency exchange resulting from the payment of interest under a loan agreement;
• Guarantee fees and similar fees incurred as a result of a contract in which the other party has guaranteed to pay a predetermined amount if certain conditions are met;
• Administrative costs other than interest, incurred as a result of a loan agreement; and

A portion of the discount on debts that have no interest or have abnormally low interest that is included in profits for the taxable period or treated as a business expense.