While for a long time this was considered acceptable, the matter became uncertain following two decisions of the Court of Appeal of Antwerp, confirmed by the Supreme Court, the Nyrstar (2020) and Duvel Moortgat (2023) cases, in which the Court of Appeal of Antwerp denied the tax deduction on the basis that the finality condition of Article 49 BITC was not fulfilled. According to this case law, the taxpayers failed to prove that the interest expenses were made or incurred with a view to acquiring or maintaining taxable income. Both these cases have not been annulled by the Supreme Court, despite the absence of a general rule of non-deductibility of such interest.
In these two recent decisions, the Court of Appeal of Ghent, while confirming the principles laid down by the Supreme Court, recognized that the finality condition of Article 49 was met.
To demonstrate such evidence, the Court followed the taxpayers’ argument that the loans were taken out to prevent the loss of assets that are used to acquire or maintain taxable income:
- In the first case (Ghent, 10 December 2024), the financial statements of the taxpayer showed that its main assets were shareholdings in other companies (accounting for approximately 80% of the total balance sheet) and limited short-term receivables. Consequently, it was evident for the Court that the taxpayer could not carry out the decided equity distribution without disposing of (part of) these income-generating assets.
- In the second case (Ghent, 18 February 2025), the taxpayer’s only relevant asset was a long-term receivable with an annual interest rate of 7%. As a result, the taxpayer was not able to pay the decided capital reduction without disposing of this receivable and decided to settle the capital reduction by means of a debt to its shareholder with an annual interest rate of 6.5%.
We believe that such reasoning is the only correct application of Article 49 BITC and, in particular, its finality condition. If the taxpayer can prove that he is not in a position to carry out the decided equity distribution without disposing of his income-generating assets, the interest due on the loan taken out to finance this distribution should be regarded as having been incurred with a view to obtaining or maintaining taxable income.
The Court of Appeal of Ghent added that the final use of the funds by the shareholder is irrelevant in determining whether the interest satisfies the finality condition of Article 49 BITC.
It is interesting to note that the second judgment was delivered by a three-judge Court.
These two cases appear to be a clear reversal of the case law of the Court of Appeal of Antwerp. However, it is still unclear whether these cases of the Court of Appeal of Ghent will pass the test of the Supreme court. Based on the reasoning of the Court of Appeal of Ghent, we believe that the Supreme Court could uphold these cases by applying its own principles laid down in the Nyrstar case, being the absence of a general rule of non-deductibility of such interest.
