Prevention of exemption due to a specific limitation of interest deduction
In certain situations, interest due is not deductible because the debt has been incurred for a transaction that can be seen as an erosion of the tax base.
According to the current rules, a limitation of interest deduction could lead to the net exemption of an amount of negative interest and currency gains on tax base-eroding debts. The Government considers this not desirable.
As of 1 of January 2021, the specific limitation of interest deduction on a certain intra group debt for financing certain transactions, can no longer result in a lower profit by such a ‘qualifying’ debt (i.e. setting off a currency loss with a non-deductible interest). It must be determined per debt whether the amount of negative interest or currency gains exceeds the amount of positive interest, currency loss, or costs. To this extent, this negative balance can no longer be excluded from the taxable profit based on the limitation of interest deduction.
Would you like more information on the concurrence of limitations of interest deduction? Then contact Vincent Wanningen, senior tax advisor at ABAB International, on 013-4647209 or send Vincent an e-mail.