Recent case law on the tax limitation of interest deductibility

The financing cost surplus: the key principles

Net interest expenses, or the “financing cost surplus” (“FCS”), are only tax-deductible up to the higher of (i) EUR 3 million, or the portion allocated to a Belgian group company, and (ii) 30% of the fiscal EBITDA. A company or group of companies is in any case entitled to a de minimis deduction capacity of EUR 3 million, regardless of whether 30% of the fiscal EBITDA would be lower.

Because at least EUR 3 million of net interest expenses are tax-deductible in any event, this rule is less relevant for the average Belgian SME, which will generally not incur EUR 3 million in interest expenses during a financial year. However, it remains relevant for groups of affiliated companies, as the minimum threshold of EUR 3 million must then be allocated among all Belgian companies within the group.

How is the financing cost surplus calculated?

The FCS is calculated for each Belgian company within the group and is defined as the positive difference between:

• the total amount of interest expenses and economically equivalent expenses, less;
• the total amount of interest income and economically equivalent income.

However, several important exclusions apply when calculating the FCS:

• Interest relating to “historical loans”: loans concluded before 17 June 2016 may, under certain conditions, be excluded from the FCS calculation.
• Intragroup interest: interest paid to Belgian group companies or received from Belgian group companies is not taken into account when calculating the FCS.

Uncertainty often remains as to what may qualify as “interest expense” and “interest income”, given the broad definition of these concepts. Taxpayers may obtain greater certainty by requesting an advance ruling from the Ruling Commission. In a previous article, we discussed in more detail the impact of an interest component in the sales price and whether it may be deducted from the FCS.

Financing cost surplus: EUR 3 million threshold not exceeded

Even group companies with an annual FCS of less than EUR 3 million must comply with certain additional formalities. A signed form 275 CRC must be attached to the corporate income tax return in order to waive the fiscal EBITDA calculation and ensure that the EUR 3 million threshold is allocated among the group members based on the FCS. Even in smaller groups with an FCS of less than EUR 3 million, this form must therefore be prepared annually. At least one group company must attach the signed form 275 CRC as an appendix to its corporate income tax return.

When interest relating to “historical loans” concluded before 17 June 2016 is excluded from the FCS calculation, the company must attach an additional appendix to its corporate income tax return with further information on the relevant loan.

Financing cost surplus: EUR 3 million threshold exceeded

When a company or group of companies has a total FCS exceeding EUR 3 million, this does not automatically mean that the surplus above this threshold is non-deductible for tax purposes. In that case, the second threshold, namely 30% of the fiscal EBITDA, must be calculated for each entity.

The fiscal EBITDA calculation starts from the taxable result after the first operation in the corporate income tax return, after which various corrections are made, including:

• the elimination of intragroup transactions between Belgian companies that were affiliated for the entire financial year through ad hoc consolidation;
• the addition of tax-deductible impairments and depreciations;
• the elimination of income qualifying for the 100% dividends received deduction or the 85% innovation income deduction;
• the deduction of the tax consolidation contribution;
• and so on.

The fiscal EBITDA is therefore calculated for each company through a step-by-step process. If certain companies have a negative fiscal EBITDA, these negative EBITDA amounts must first be reduced to zero using the positive EBITDA amounts of other entities. Subsequently, 30% of each fiscal EBITDA is taken to determine the deduction capacity threshold for each entity. In a next step, the individual FCS is compared with 30% of each entity’s fiscal EBITDA, being the threshold amount.

Example 1

It is entirely possible for a company (“BelCo 1”) to have an FCS of EUR 100, while only having its own threshold amount of EUR 60. The difference of EUR 40 would in principle have to be considered non-deductible for tax purposes. However, assume that another group company (“BelCo 2”) has an FCS of EUR 20 and a threshold amount of EUR 80. BelCo 2 then has EUR 60 of excess interest deduction capacity. Part of this amount, namely EUR 40, may be transferred to BelCo 1, allowing BelCo 1’s FCS to be fully deductible. BelCo 1’s threshold amount is then increased from EUR 60 to EUR 100.

Such a transfer of interest deduction capacity is arranged between the parties through form 275 CDI, which may optionally provide for remuneration for the transfer. A signed copy of form 275 CDI must be attached as an appendix to the corporate income tax returns of the parties involved.

A situation of insufficient deduction capacity at Belgian group level is, of course, also possible.

Example 2

Let us take the above example again, but this time BelCo 2 only has a threshold amount of EUR 20. In principle, BelCo 1 will have a non-deductible FCS of EUR 40, which will be included as a disallowed expense in BelCo 1’s corporate income tax return. Form 275 SE is attached to BelCo 1’s corporate income tax return and the non-deductible FCS is carried forward to the next financial year. This mechanism ensures that the non-deductible FCS can be recovered, in whole or in part, in a later year if the group has sufficient interest deduction capacity.

The tax circular on the interest deduction limitation goes one step further regarding the transfer of interest deduction capacity. It states that a company may transfer no more than its own threshold amount to another group company. If a company transfers its own threshold amount in full, it will nevertheless have to include its own FCS as a disallowed expense. In example 2, BelCo 2 can therefore transfer a maximum of EUR 20 to BelCo 1, after which BelCo 2 must disallow its own FCS of EUR 20 for tax purposes. This may be appropriate where BelCo 2 has, for example, carried-forward tax losses that can be used to offset the non-deductible FCS, so that no additional tax cost arises.

It is precisely on the scope and interpretation of the possibilities for transferring interest deduction capacity between companies that two recent judgments have been rendered.

Court of first instance (Bruges, February 2026)

In a recent judgment, the Court of First Instance ruled on the tax limitation of interest deductibility. The Court annulled the corporate income tax assessments imposed by the tax authorities, holding that the authorities had added conditions that are not provided for in the legislation.

The case concerned an intragroup bank within an international group that raised external financing and subsequently on-lent those funds to other group companies. The tax authorities took the view that certain agreements relating to the transfer of interest deduction capacity between Belgian group companies were not valid. These agreements concerned the transfer of interest deduction capacity between Belgian entities.

According to the tax authorities, a group company could not transfer interest deduction capacity if it did not itself have a positive threshold amount. Under this interpretation, a company with a fiscal EBITDA of zero could not transfer any interest deduction capacity to another group entity. Consequently, the amount that could be transferred was limited to the transferring company’s own threshold amount.

The taxpayer challenged this interpretation, arguing that the wording of the law explicitly allows a group company to transfer an amount exceeding its own threshold amount. According to the taxpayer, the tax authorities were therefore imposing an additional condition that cannot be found anywhere in the legislation. The taxpayer further argued that there was no abuse of law, as it was merely making use of a mechanism expressly provided for by the legislator.

The Court agreed with the taxpayer’s position. The judgment emphasises that the wording of the law is clear and leaves no room for the restrictive interpretation advocated by the tax authorities. While the legislation specifies the consequences of transferring an amount exceeding the available threshold amount, it does not prohibit such a transfer. The Court therefore held that the tax authorities cannot require the transferring company to have a positive or unused threshold amount before a transfer can take place.

Court of first instance (Walloon Brabant, April 2026)

In contrast to the judgment of the Court of First Instance in Bruges, the Court of First Instance of Walloon Brabant ruled that a company cannot transfer more interest deduction capacity than it actually possesses. In practical terms, a company with a threshold amount of zero, for example due to a negative fiscal EBITDA, cannot transfer any deduction capacity to other group companies.

This interpretation is therefore directly opposed to the earlier judgment, which endorsed a broader reading of the legislation. Until further clarity is provided, this creates legal uncertainty for groups wishing to rely on the more flexible interpretation of the transfer mechanism.

Preliminary questions referred to the Court of Justice

The Court of First Instance of Walloon Brabant also addressed the request to refer preliminary questions to the Court of Justice of the European Union. The key issue is whether Belgium has correctly implemented Article 4(1), third paragraph, of the ATAD Directive.

The Court refers in this context to an “incomplete” form of tax consolidation. Under the Belgian rules, negative fiscal EBITDA amounts must be reallocated within the group and offset against positive fiscal EBITDA amounts of other entities. However, no similar mechanism exists for the FCS. As a result, a negative FCS of one entity, where interest expenses are lower than interest income, cannot be offset against the positive FCS of another entity.

This limitation prevents the FCS from being reduced at group level. At the same time, the mandatory offsetting of negative fiscal EBITDA against positive fiscal EBITDA reduces the overall interest deduction capacity available within the Belgian group.

An interesting detail is that, had positive and negative FCS amounts been allowed to offset one another, the taxpayer in the Walloon Brabant case would not even have had a positive FCS. In that scenario, all interest expenses would have been fully tax-deductible under these rules.

Conclusion and key takeaways

• Groups actively involved in acquisitions, expansion and financing activities will often make use of an internal financing company ("FinCo"). For interest deduction purposes, such a FinCo will generally have little or no interest deduction capacity due to its limited taxable base. It is therefore important to assess whether other group companies can transfer deduction capacity. If not, part of the interest expense may become non-deductible, resulting in an undesirable tax cash-out cost that may also arise in future years.
• Assess the impact of the interest deduction limitation in a timely manner. This includes identifying which Belgian companies were affiliated throughout the entire financial year, which entities have sufficient or insufficient deduction capacity, mapping the relevant interest flows and reviewing the applicable compliance requirements.
• A timely analysis also helps avoid unexpected issues shortly before filing the corporate income tax returns.
• Ongoing monitoring of the interest deduction limitation during the financial year is recommended, allowing the group to make any necessary advance tax payments. Failure to do so may result in tax surcharges for insufficient advance payments.
• Interest on intragroup loans, including loans granted by an internal FinCo, must always comply with the arm’s length principle. The interest rate applied must reflect market conditions, be supported by a transfer pricing analysis and be documented in an intercompany loan agreement. A timely benchmarking study and up-to-date transfer pricing documentation are therefore essential, particularly where the FinCo raises external financing and channels those funds to other group companies.
• Further developments in Belgian tax case law should also be closely monitored.
• Similar thin capitalisation rules exist in other EU Member States. It is therefore advisable to assess the impact of these rules on foreign group companies as well.

If you have any questions about this topic or about the practical calculation of the interest deduction limitation, please do not hesitate to contact our experts or your trusted Moore contact.