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Practical Handbook for Companies 2021

Example

Example 1:

How to apply net financial charges from previous years

Entity A reports the following data for the tax period:

  • Operating Profit (BO):100 million
  • Financial charges (GF):
    • Year 0:80 million
    • Year 1:20 million
    • Year 2:40 million

According to Article 16.1 of the LIS, an entity may deduct net financial expenses up to a limit of 30 percent of the operating profit for the year;1 million, the net financial expenses for the tax period being deductible in any case.

Maximum limit:

  • - 30% Operating profit = 30% x 100 = €30 million
  • - 1 million

Year 0:

  • Limit BO = 30 million € (30% of 100)
  • Deductible GF = 30 million €.
  • Unconsumed BO limit

Year 1:

  • Limit BO = 30 million € (30% of 100)
  • Deductible GF = 20 million € of the tax period + 10 million € of the previous tax period (Year 0)
  • GF to be deducted = € 40 million from previous tax period (Year 0)

Year 2:

  • Limit BO = 30 million € (30% of 100)
  • Deductible GF = €30 million of the tax period
  • GF to be deducted = €40 million from Year 0 and €10 million from this tax period (Year 2).
Millions €Financial expenses
net
LimitFinancial expenses
net deductible
Exercise limit
following
Financial expenses
earrings
Year 0 80 30 30 --- 50
Year 1 20 30 20 + 10 --- 40
Year 2 40 30 30 --- 40 + 10

Example 2:

How to carry forward unutilised operating profit

Entity B submits the following data for the tax period:

  • Operating Profit (BO):100 million
  • Financial charges (GF):
    • Year 0:20 million
    • Year 1:10 million
    • Year 2:60 million

Maximum limit:

  • - 30% Operating profit = 30% x 100 = €30 million
  • - 1 million

Year 0:

  • Limit BO = 30 million € (30% of 100)
  • Deductible GF = €20 million of the tax period
  • Unconsumed BO limit

Year 1:

  • Limit BO = 30 million € (30% of 100)
  • Deductible GF = 10 million € of the tax period
  • GF to be deducted = 20 million €.

Year 2:

  • Limit BO = 30 million € (30% of 100)
  • Deductible GF = 60 million € (30 million € by application of the limit for the tax period + 30 million € coming from excess BO from previous periods)
  • GF to be deducted = 0
Millions €Financial expenses
net
LimitFinancial expenses
net deductible
Exercise limit
following
Financial expenses
earrings
Year 0 20 30 20 10 ---
Year 1 10 30 10 20 + 10 ---
Year 2 60 30 + 30 60 --- ---

Example 3:

How to apply the EUR 1 million limit

Entity C reports the following data for the tax period:

  • Annual Operating Profit (BO) for each tax period:2 million € 2 million € 2 million € 2 million € 2 million € 2 million € 2 million
  • Financial charges (GF):
    • Year 0:0.8 million € 0.8 million € 0.8 million € 0.8 million € 0.8 million
    • Year 1:1.1 million
    • Year 2:0.8 million € 0.8 million € 0.8 million € 0.8 million € 0.8 million

Maximum limit:

  • - 30% Operating profit = 30% x 2 = 0.6 million € 0.6 million
  • - 1 million

Year 0:

  • Deductible GF = 0.8 million € as less than 1 million €.

Year 1:

  • Deductible GF = 1 million €.
  • GF to be deducted = 0.1 million €.

Year 2:

  • Deductible GF = €0.8 million from the tax period + €0.1 million from previous tax period (Year 1)
  • GF to be deducted = 0
Millions €Financial expenses
net
LimitFinancial expenses
net deductible
Exercise limit
following
Financial expenses
earrings
Year 0 0.8 1 0.8 --- ---
Year 1 1.1 1 1 --- 0.1
Year 2 0.8 1 0.8 + 0.1 --- ---