Interest deduction limitation: the impact of specific payment terms on loans due to COVID-19

On 5 May 2020, the Belgian General Administration of Taxes issued an addendum (circular 2020/C/62) to circular 2019/C/89 relating to the grandfathering clause on the limitation of interest deduction.

In the context of "grandfathering" applicable to certain loans, this addendum specifies that the granting of specific payment terms resulting from the exceptional situation caused by the COVID-19 pandemic is not considered to be a significant or fundamental change.


The net financial charges (“financing cost surplus”) are not tax-deductible by Belgian entities (i.e. companies and establishments) when they exceed the higher of the following two amounts:

  • EUR 3 million; or
  • 30% of the "taxable EBITDA".

Net financial charges refer to the positive difference between interest paid and interest received.

Interest on loans for which the taxpayer has demonstrated that the contract was concluded before 17 June 2016 and to which no fundamental changes have been made since that date are characterised as grandfathered loans and interest from these loans are not taken into account when determining net financial charges.

In principle, any significant or fundamental change made after 17 June 2016 to a loan that could benefit from the "grandfathering" clause will, in principle, cause the loan in question to lose its character as a grandfathered loan.

Conditions for the application of the exception

The exceptional situation caused by COVID-19 and the measures taken by the federal government in this regard will have inevitable negative consequences for the liquidity and solvency of certain companies. In this respect, specific payment terms may be granted for certain loans.

These specific payment arrangements for loans concluded before 17 June 2016 are not to be considered as fundamental changes when:

  • the taxpayer can demonstrate that the payment problems are a consequence of the COVID-19 crisis; and
  • the terms of payment are set out in an application approved by a financial institution or set out in a supplementary agreement.

In other words, these loans may continue to benefit from the grandfathering clause in question and interest from these loans are not taken into account when determining net financial charges.

We will keep you informed about future developments.

Olivier Querinjean, Partner, Brussels Member of the Tax group

Arnout Vaninbroukx, Senior Associate, Brussels

Lancelot Decaesstecker, Junior Associate, Brussels