Notional interest cost €6.2 billion in 2012

  • In one year the measure cost €800 million more.
  • Ecolo deputy Gilkinet says it is a catastrophic result.
  • SMEs barely profited from this gift.

Here’s a new element to be added to the already overflowing notional interest file. This tax measure was instituted in 2006 and allows a substantial reduction in taxes imposed on some companies. The mechanism was to provide an equal footing to businesses that borrow and those that finance themselves from their own funds. A business that borrows can deduct interest paid from its taxes. In addition, since 2006, a fictional (notional) rate was applied to a company’s own funds to allow those who do not borrow to benefit from a deduction.

 

This measure has been a subject of debate since it was implemented. It favors large companies above all: between 2008 and 2011, for example, ArcelorMittal was able to deduct €5.6 billion while the group generated €5.8 billion in profits. In other words Arcelor paid almost no taxes in Belgium.

 

A few days ago, SPF Finances published its “inventory of exemptions, abatements and reductions that influence the state’s revenue.” Its focus is the 2012 filings (2011 revenues), and the report shows that, in total, deductions for notional interest in 2012 “cost” the State €6.16 billion. That is almost €800 million more than in 2011, when the deductions totaled €5.37 billion. It’s also much more than in 2010 (€4.95 billion), 2009 (€5.34 billion) and 2008 (€3.8 billion).

 

Catastrophic result

Of course, these figures do not take into account rate reductions for notional interest that were decided by the following: for 2012 revenues, businesses could only deduct 3% of their capital. For 2013, the rate was once again lowered to 2.7%. The reduction in notional rates does not necessarily imply a reduction in the size of the gift. Between 2009 and 2011 notional rates had already been significantly slashed from 4.4% to 3.5%. “The initiatives taken in 2009, 2010 and 2011 to limit notionals did not translate into a reduction in the cost of this measure, which is becoming more and more burdensome to the state’s finances,” says Ecolo/Green federal deputy Georges Gilkinet. “Not only is this measure costly, but it is inefficient because it benefits very few small businesses,” he adds. At the beginning of the year, while he was still Finance minister, Steven Vanackere estimated that SMEs profited by up to €555 million for the 2010 tax year and €556 million for 2011. “Or a proportion , now lower, of less than 10%, far from the real contribution of SMEs to the Belgian economy,” emphasizes the Ecolo deputy, recalling that, according to the European Commission, SMEs are responsible for 67.7% of jobs and 61.6% of value added. “In short, the economic results of notional interest are catastrophic,” the deputy concludes.

 

However, the measure’s defenders point out that this gift is not a true expenditure, because if it did not exist, large foreign groups would set up their financial vehicles outside Belgium. “Perhaps,” responds Georges Gilkinet. “But we have to stop the tax escalation at the European level. My tax perspective doesn’t stop at my front door.”

 

PIERRE-HENRI THOMAS

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