Notional interest deduction on equity
The Belgian Ministry of Finance announced the introduction of a "notional" interest deduction. Although the Belgian proposal would be published before the end of June, no official proposal was submitted until now. It is still intended, however, that the new rules allowing the deduction of deemed interest will enter into force on 1 January 2006.
The new measure will allow all Belgian corporate taxpayers (i.e. Belgian companies and companies with a Belgian branch) to deduct a certain percentage of their equity from the taxable profit for corporate income tax purposes. The amount of the deduction is based on the interest rate of Belgian state bonds with a term of 10 years. Currently this rate is 3.3%. The rate is applied to the total equity of the company (share capital plus reserves).
The proposal aims to reduce the difference between the tax treatment of debt financing (interest paid is deductible) and equity financing (no deduction for the remuneration for equity providers). The measure stimulates companies to finance Belgian operations with equity.
The Dutch Ministry of Finance addressed the same issue in the announced corporate tax reform but has chosen a different approach. The Dutch approach is to make it more attractive to finance subsidiaries with loan capital by creating the possibility to pay only 10% tax on intercompany interest received.
It goes without saying that life for multinational companies is not made much easier if the European member states introduce different measures for the same issue. The diversity of possibilities provides, on the other hand, interesting opportunities to companies.
