Post by Dirk Van Stappen on Feb 26, 2009 3:40:25 GMT 4
Belgium: Notional interest deduction remains an attractive tax feature
Dirk Van Stappen
Much has already been said about the deduction for risk capital, better known as the notional interest deduction. Since its introduction in 2005, it has become the jewel on the crown among Belgium's attractive tax features. The concept of granting a deduction from taxable income based on a company's equity was revolutionary and surprised the outside world. Designed initially to promote equity funding of Belgian small and midsize companies but – not to forget – also to serve as a replacement for the EU-banned Belgian coordination centre, the system has given rise to an important shift of funds towards Belgium.
For the financial years 2006, 2007 and 2008, the applicable notional interest rate has been set at 3.442%, 3.781% and 4.307% respectively. For financial year 2009 (assessment year 2010), the rate has been set at 4.473% (Belgian official Gazette of January 14 2009).
On a macro economic basis the notional interest regime is believed to have reduced the effective Belgian corporate tax rate to an average level of 26% to 28%. For duly structured Belgian financing companies however, the effective tax rate will merely amount to a few percent. Notwithstanding the fact that the administrative circular letter (AOIF/AFER nr. 14/2008) of April 3 2008 and of June 2 2008 provides guidelines with respect to anti-abuse provisions, the number of rulings relating to intra-group financing activities and group financing companies increased significantly in 2008. Practice meanwhile learned to adequately cope with defensive obstacles created by foreign legislators, like foreign CFC rules as they exist among other things in the US, the UK and Germany.
Dirk Van Stappen (dvanstappen@kpmg.com)
Dirk Van Stappen
Much has already been said about the deduction for risk capital, better known as the notional interest deduction. Since its introduction in 2005, it has become the jewel on the crown among Belgium's attractive tax features. The concept of granting a deduction from taxable income based on a company's equity was revolutionary and surprised the outside world. Designed initially to promote equity funding of Belgian small and midsize companies but – not to forget – also to serve as a replacement for the EU-banned Belgian coordination centre, the system has given rise to an important shift of funds towards Belgium.
For the financial years 2006, 2007 and 2008, the applicable notional interest rate has been set at 3.442%, 3.781% and 4.307% respectively. For financial year 2009 (assessment year 2010), the rate has been set at 4.473% (Belgian official Gazette of January 14 2009).
On a macro economic basis the notional interest regime is believed to have reduced the effective Belgian corporate tax rate to an average level of 26% to 28%. For duly structured Belgian financing companies however, the effective tax rate will merely amount to a few percent. Notwithstanding the fact that the administrative circular letter (AOIF/AFER nr. 14/2008) of April 3 2008 and of June 2 2008 provides guidelines with respect to anti-abuse provisions, the number of rulings relating to intra-group financing activities and group financing companies increased significantly in 2008. Practice meanwhile learned to adequately cope with defensive obstacles created by foreign legislators, like foreign CFC rules as they exist among other things in the US, the UK and Germany.
Dirk Van Stappen (dvanstappen@kpmg.com)