The Impact Of Recent Changes To Belgian Tax Law On Public-Private Partnerships
Eager to cut the budget deficit, the Di Rupo government has proposed several new tax measures, including new restrictions on the notional interest deduction (NID) and more stringent thin capitalization rules. In this newsflash, we discuss the impact of these changes on the PPP sector. Although PPPs will not be directly affected by the changes to the thin cap rules, the same cannot be said for the new restrictions on the NID. Thus, in the coming years, a reassessment of PPP financing and structuring possibilities will undoubtedly be necessary.
New restrictions on the NID
The NID rules, which entered into force in tax year 2007, allow Belgian corporate taxpayers (and foreign corporate taxpayers with a permanent establishment in Belgium) to benefit from a tax deduction corresponding to a percentage of (fictitious) interest on their adjusted net equity, i.e. the company's net equity, as stated on its opening balance sheet for the tax period, less certain disqualified amounts. The adjusted net equity is subsequently multiplied by a fixed interest rate, based on the average interest rate on ten-year Belgian government bonds (OLOs). This rate was initially capped at 6.5% but was subsequently reduced for tax years 2011 and 2012. The result of this equation constitutes the NID for the year. Any unused portion of the NID can be carried forward for seven tax years.
The Omnibus Act of 28 December 2011 (the "Omnibus Act") implemented some of the tax measures proposed in the 2012 budget agreement and, with respect to the NID, further lowered the maximum interest rate to 3%, or 3.5% for SMEs (where, based on the OLOs, the interest rate would have been 4.2% approximately). The new cap will apply as from tax year 2013.
The 2012 budget agreement proposed other amendments to the NID rules. It is likely that these changes will be enacted shortly, as the cabinet formally announced an agreement to this effect in the Omnibus Bill of April 2012 (the "Omnibus Bill"). At the time of writing, no official version of the Omnibus Bill was publicly available. However, the Bill is thought to repeal the current possibility to carry forward any unused portion of the NID for seven years. Under the new rules, it will still be possible to carry forward the unused portion of the NID built up under the previous rules (the "NID stock") before the Bill was introduced, but certain restrictions will apply: (i) the NID stock carry-forward must be the last deduction taken on the...
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