EXCLUSION OF THE NET EQUITY OF EEA BRANCHES FOR THE CALCULATION OF THE NOTIONAL INTEREST DEDUCTION VIOLATES EU-LAW
28 April 2013
In the framework of the Belgian case Argenta Spaarbank NV (C-350/11), the advocate-general at the Court of Justice of the European Union (CJEU) has indicated that the Belgian notional interest deduction infringes the European principle of freedom of establishment.
The notional interest deduction is a tax deduction that is calculated based on the company’s net equity and applying a fixed rate (for the assessment year 2013, the normal rate is 3% and the increased rate amounts to 3.5%). Certain items should be excluded from the basis for the computation of the notional interest deduction, amongst which the net equity of a foreign branch of the Belgian company located in a treaty country.
The part of the Belgian company’s net equity, which is attributable to a permanent establishment located in a country of the European Economic Area (EEA), should be excluded from the basis for the calculation of the notional interest deduction. Such exclusion does not apply in relation to a Belgian establishment. This difference in treatment is considered discriminating.
Up to now, no final decision is made by the CJEU. If the final decision of the CJEU will be in the same line as the opinion of the advocate-general, Belgium will have to amend its current legislation.
In the next corporate income tax return to be filed, a Belgian company with a branch office located in an EEA country can decide to no longer exclude the net equity of this foreign branch from the basis of the computation of the notional interest deduction.
Once the CJEU has given a final judgment, companies have the possibility to introduce a formal complaint or request for ex officio tax relief in order to obtain a revision of their initial tax assessment.
For more details in this respect, please contact your BDO contact person or your tax contact person of your BDO office.