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In the last few years, the Belgian tax administration has been targeting multinationals benefitting from a substantial notional interest deduction and tends to deny them the deduction when they cannot show sufficient substance in Belgium. Taxand Belgium discusses this case.
Beginning of 2016, the Antwerp Court of Appeal passed judgment in favour of Finnish energy giant Fortum by ruling that the application of the Belgian notional interest deduction does not require specific substance in Belgium.
The latter judgment is a windfall for many multinational groups holding a financing company in Belgium!
The Belgian notional interest deduction (NID) was introduced in 2005 to abolish the tax discrimination between (deductible) debt and (non-deductible) equity financing of companies. Since tax year 2006, Belgian companies and permanent establishments of foreign companies can deduct a fictional interest cost on the amount of their (adjusted) accounting equity.
The maximum NID rate has recently been set at 3%, and – more specifically – amounts to 1.131% (1.631% for small and medium-sized companies) for 2016. The NID has been a great tax-planning and company-financing tool, and until today, the NID remains one of the main fiscal attractions for doing business in Belgium. The Belgian Government has always, and even actively, promoted the NID scheme throughout the world by organising seminars abroad, distributing positive information, etc.
Discover more: Fortum case: no specific substance required for notional interest deduction
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At this stage, we cannot exclude that the Belgian tax administration will not abide by this jurisprudence when confronted with a situation that, in their opinion, lacks substance and will continue to challenge the NID application.