Survival of the Richest

Belgium
Notional Interest Deduction
According to the Belgian Notional Interest Deduction (NID)
regime, resident companies may deduct an imaginary
interest expense from their taxable profits, which is
calculated on the basis of a fixed rate of maximum 3 per
cent and an adjusted value of the company’s equity. 262
The rationale behind the NID was to eliminate the fiscal
discrimination between debt and equity financing in order
to promote capital-intensive investments in Belgium and
attract multinational corporations to allocate activities such
as intra-group financing, central procurement and factoring
to a Belgian group entity. 263 The general anti-abuse clause
in Belgian tax law is applicable where the main purpose
of entering into an operation was to obtain a notional
interest deduction and where obtaining this deduction in
these circumstances would be contrary to the object of
the measure. 264 However, the system is controversial for
several reasons. Firstly, the NID can turn out to have a
high fiscal costs. For example, the estimated costs were
around €21 billion between 2006 and 2010, while it mainly
attracted corporations without any additional employment
in Belgium. 265 Secondly, it is controversial because there
are concerns that this mechanism can be abused by
multinational corporations seeking to avoid taxes. For
example, a recent report commissioned by the Greens in
the EU Parliament lists the scheme as one of the ways that
IKEA is avoiding taxes and underlines that ‘the NID can
facilitate profit shifting and tax avoidance’. 266 In response,
IKEA said the report had ‘incorrect assumptions and
misunderstandings, leading to false conclusions’. 267
Tax deductions for patent income
Since 2008, Belgium has applied a patent income scheme
granting an 80 per cent deduction for patent income applied
on a gross basis which allows the effective tax rate (ETR) on
such income to be reduced to a maximum of 6.8 per cent.
This 6.8 per cent rate can be further decreased with other
deductions (such as tax-deductible business expenses,
including research and development expenses) as well as
by making use of other tax incentives such as investment
deductions of research and development expenses or tax
credits and the notional interest deduction. 268
However, in response to the OECD Action Plan on BEPS,
Belgium abolished its ‘patent income deduction’ scheme
as of 1 July 2016. 269 According to tax advisors PwC and
KPMG, the Belgian government is instead working on a new
‘innovation income deduction’ scheme to be in line with
OECD BEPS. 270 The percentage of this deduction will be
raised from 80 per cent under the existing Patent Income
Deduction (PID) regime to 90 per cent under the proposed
regime. 271 Although the new regime was not finalised by 1
July 2016, it is expected to take effect from that date. 272 In
line with the OECD guidelines, 273 a so-called ‘grandfathering
provision’ is expected to be part of the new Belgian regime,
and will mean that many multinational corporations which
have tax benefits under the old regime will be able to keep
these benefits until 2021. 274
Excess profit ruling
The 'excess-profit ruling' regime in Belgian corporate
tax law allows a company to reduce its taxable profits in
Belgium by subtracting the part of the profit that does not
originate from real business activities in Belgium but rather
from importing profits created abroad. 275 It is therefore
a form of legalized profit shifting and tax avoidance. In
January 2016, the European Commission concluded its
investigation of this regime by deciding that it discriminates
against small companies and constitutes a form of illegal
state aid, and ordered Belgium to recover a total sum of
around €700 million from the companies that benefitted
from such rulings. 276
On 22 March 2016, not satisfied with the Commission’s
decision, the Belgian authorities led by Finance Minister Van
Overtveldt appealed the ruling, seeking its annulment. 277
In April 2016, the Belgian government also sought to
temporarily suspend the recovery of the €700 million
pending the results of its appeal. However, the President of
the General Court of the European Court of Justice rejected
this request on 19 July 2016. 278
Belgian tax authorities also offer advance pricing
agreements (or ‘sweetheart deals’) to multinational
corporations. In fact, the number of advance pricing
agreements issued by Belgium soared from 10 at the end
of 2013 to 166 at the end of 2014, and reached 411 at the
end of 2015. 279 This rapid increase placed Belgium as the
country with the second highest number of advance pricing
agreements in the EU, just behind Luxembourg. 280
56 • Survival of the Richest