This rule restricts the deductibility of exceeding borrowing costs in the tax period in which they are incurred up to 30% of the taxpayer’s tax-adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), with a €3 million threshold. Exceeding borrowing costs refer to the net interest expense, being the interest income less the interest expense on all forms of debt and other costs economically equivalent to interest and expenses incurred in connection with the raising of finance.
Exemptions nonetheless apply to standalone entities and certain long-term infrastructure projects.
In the case of consolidated groups for financial accounting purposes, EBITDA and borrowing costs are calculated at the group level, excluding financial undertakings. Taxpayers may apply a higher deductibility limit if they can demonstrate that the group’s equity-to-assets ratio is higher than or equal to that of the group.
Unused interest capacity and non-deductible interest may be carried forward for up to 5 years or transferred within the group, subject to certain conditions. The €3 million threshold is converted using annual average exchange rates for non-euro taxpayers.