Non-application of NID to foreign permanent establishment and real estate

Written by Philippe Vanclooster 4 June 2014


The Belgian tax authorities have recently issued a practice note with regard to the Belgian notional interest deduction (‘NID’) and the possibility for the taxpayer to file a tax claim or request an ex officio tax relief.

Companies subject to Belgian (non-resident) corporate income tax may deduct a notional interest reflecting the economic cost of the use of capital from their taxable income.

The NID is calculated on the basis of the company’s accounting equity, subject to certain adjustments. Amongst others, Belgian tax law provided that this calculation basis had to be reduced with the net value of the assets of foreign permanent establishments (‘PE’) or real estate (or the rights thereon) of which the income is exempt from Belgian tax by virtue of a double tax treaty.

On 4 July 2013, the European Court of Justice ruled that it is incompatible with EU law that the equity attributable to a foreign PE of which the profits are not taxable in Belgium by virtue of a double tax treaty, should be excluded from the NID calculation basis, whereas the assets of a Belgian PE or a PE in a country with which Belgium has not concluded a double tax treaty are not to be excluded.

The Belgian tax authorities have recently issued a practice note (practice note of 16 May 2014) confirming that companies can file a tax claim against assessment notices received that are unlawful on the basis of this judgement, within 6 months as from the third working day following the sending of the assessment notice. Currently, companies can also still request an ex officio tax relief of the tax overpayment which is assessed at the earliest in the course of calendar year 2010.

The practice note moreover states that pending disputes should be settled in accordance with the decision of the European Court of Justice.

Reference in this respect is made to the amendments to Belgian tax law published on 31 December 2013 by virtue of which the equity attributable to a PE or real estate located in treaty countries is no longer to be deducted from the NID calculation basis as of assessment year 2014 (accounting years ending 31 December 2013 up to and including 30 December 2014).

However, under the new Belgian tax provisions, the NID calculated on the higher calculation basis must be reduced with the part thereof that relates to the net asset value of such PE or real estate. For a PE or real estate located inside the European Economic Area (‘EEA’), the related NID that is thus refused is limited to the profit of the PE or real estate. Companies with a loss making PE or real estate established in the EEA therefore no longer lose the benefit of the NID calculated on the net asset value thereof.

According to the Council of State, the adjusted legislation still infringes EU law, as companies with a PE or real estate in Belgium or non-treaty countries could be treated more favourably than companies with a PE in treaty countries.

For more information, please do not hesitate to contact your regular PwC advisor.