Belgian law on PE adjustment to the notional interest deduction basis not EU compliant

European Tax Newsalert
The European Union Court of Justice (ECJ) has ruled that the treatment of foreign permanent establishments (PEs) under the Belgian notional interest deduction (NID) computation did not comply with the EU freedom of establishment. The ECJ ruled that reducing the NID basis by the net book value of assets allocated to PEs in treaty countries (i.e., where the income is in principle exempted in Belgium based on a double tax treaty) restricts the freedom of establishment when compared to taxpayers with a Belgian establishment or a PE whose income is not tax exempt since in this case no adjustment is required.

MNCs whose Belgian subsidiaries have foreign PEs should assess this decision’s impact on both prior and current NID computations. Companies may then wish to take appropriate action with the Belgian tax authorities as soon as possible.


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