Excessive Borrowing Act: action required by 31-12-2023!

History:
The Excessive Borrowing Act dates back to the 2019 Tax Plan. And while this Tax Plan did not contain any major surprises, there was one exception namely the announcement of the measure to counter tax deferral and deferral due to excessive borrowing from one's own company. After a supplementary letter already outlined some contours on the design of the measure, the consultation proposal on the Excessive Borrowing from Ownership Act was published on 4 March 2019. Briefly, the proposal meant that if the total sum of the debts of the substantial interest holder to his own company or companies exceeds €500,000, the excess will be taken into account as substantial interest income and thus taxed at the rate in Box 2. Existing and new owner-occupied home debts of the substantial interest holder will be exempt under conditions. The measure was initially scheduled to take effect on 1 January 2022 but due to the Corona crisis, it was postponed to 1 January 2023. On 28 April 2022, the maximum amount was increased to €700,000.

Action:
Although the measure already applies from 1 January 2023, it is only now becoming a topic of discussion. This is because the cut-off point for testing excessive debt position at the own company is 31 December 2023. The threshold for 2023 is still at €700,000, excluding owner-occupied home loans. It is therefore important to identify now whether the debt position will exceed the threshold, what tax consequences this will entail in order to take action if necessary. This could include, for example, the set-off of receivables and debts, external debt refinancing, restructuring of financed assets, but also repayment on (equity) capital, distribution of dividends or repurchase of own shares with which debts can be repaid. There may be tax consequences attached to certain solutions. Therefore, always get proper advice.

Decrease threshold in 2024
In case one does not now cross the €700,000 threshold and thinks no action is required, we regret to disappoint you. Recently, the 1st Chamber passed the lowering of the threshold in 2024 to €500,000. So perhaps no short-term action for you, but a plan of action for 2024. Our advice is to start in time, so you avoid any potentially unnecessary tax and financial consequences.