As a reminder, the deduction of interest paid on loans will be disallowed in case, and to the extent of the excess, the total amount of these loans is higher than five times the sum of the taxed reserves at the beginning of the taxable period and the paid-up capital at the end of this period.
The deduction limitation is applicable if the beneficial owners of the interest
- are established in a tax haven; or
- are part of a group whereto the debtor belongs.
The draft program law contains the netting of interest paid and received for treasury centers.
The draft does not mention the concept of treasury centers, but refers to “financing transactions in the context of a framework agreement for centralized treasury management within a group”.
The draft defines centralized treasury management as the management of daily treasury transactions or the treasury management for the short term or exceptionally for the long term to take specific circumstances within a normal treasury management into account.
The concept of framework agreement should be understood as the agreement in which companies that are part of a group clarify the used financing model and the activities within the centralized treasury management. The agreement should contain:
a) the activities that belong to the daily management and that the company performs for the members;
b) the way outstanding receivables and debts are netted between the companies that are party to the above-mentioned framework agreement;
c) the terms for the intervention of the companies and the interest rates used”.
The term “group” refers as before to the whole of affiliated companies within the meaning of article 11 of the Companies Code.
The draft says that for treasury centers interest paid on loans (to which the thin cap rule applies) should be understood as the positive difference between
- interest paid on sums put at its disposal by group companies, and
- interest received on sums group companies have put at its disposal.
Interest received cannot be taken into account if it originates from (a.o.)
- Financial institutions and factoring and leasing companies that are part of the group and established in the EEA;
- Group companies that are established in a tax haven (EEA member states are not deemed to be a tax haven).
The treasury center must be able to prove that both interest paid and received are connected to the centralized treasury management and are the consequence of the framework agreement for that centralized treasury management.
| Receivables on affiliated companies
| Other assets
||Debts to affiliated companies
Total equity equals 125.000 EUR (capital: 100.000 EUR + retained earnings 25.000 EUR).
Loans targeted by the thin cap rule equal 800.000 EUR.
The 5 to 1 threshold is exceeded: 800.000 EUR exceeds 625.000 EUR (5 times 125.000 EUR).
Interest paid on loans to affiliated companies equals 4.000 EUR and interest received on receivables on affiliated companies equal 3.500 EUR (under the hypothesis that all amounts put at one’s disposal are actually used for the centralized treasury management).
According to the current thin cap rule, 875 EUR must be added to the disallowed expenses: 4.000 EUR x (800.000 EUR – 625.000 EUR) / 800.000 EUR = 875 EUR.
According to the draft provisions only 109,38 EUR must be added: (4.000 EUR – 3.500 EUR) x (800.000 EUR – 625.000 EUR) / 800.000 EUR = 109,38 EUR.
Entry into force
It had already been determined that the thin cap rule will enter into force on a date yet to be fixed by Royal Decree, but no later than July 1, 2012. The draft says that the modifications for treasury centers will enter into force on 1 July 2012.
On 4 May 2012, the tax administration has released a circular letter (NL / FR (PDF - 813kb) explaining the new general anti-abuse provision1.
As a reminder, legal acts cannot be opposed to the tax authorities, when it can demonstrate tax abuse based on objective circumstances. The taxpayer can deliver counter-proof by demonstrating that the choice for his legal acts is justified by other motives than tax avoidance. If the taxpayer cannot deliver, the taxable base and the tax calculation are restored in such a way that the transaction will be subject to taxation as if that abuse had not taken place.
The circular letter summarizes the points of view the Minister of Finance expressed during the earlier discussion of the anti-abuse provision in Parliament, but adds no new insights or examples.
1Art. 344, §1 BITC 1992 and art. 18, §2 Reg. C.