June 10, 2010

Reducing the fiscal pressure for companies in Belgium
Our third and final Open Letter before the Federal Elections

 

To the Leaders of Belgium’s Political and Economic Future:

AmCham Belgium recommends that the future government takes the decision to bring the corporate tax rate down to a more realistic 29% as a first step, while retaining the Notional Interest Deduction unchanged.

Our more detailed recommendations to the new Government are as follows:

• To lower the headline corporate income tax rate to 29%, which we believe is a realistic and achievable first step. This could be linked to a requirement to maintain or perhaps even increase employment (but, of course, drafted in such fashion as not to constitute an illegal State Aid).
• To compensate for any short-term loss of tax revenue from our proposed headline tax reduction, we propose the Government consider a “base-broadening” offset which would also streamline the tax system.
• To maintain the NID system, thereby assuring investors that Belgium provides a stable and predictable tax environment.

The nominal corporate tax rate in Belgium -- 34% -- is amongst the highest in Europe, (OECD) and is a major reason for the 75% decrease in foreign direct investment in Belgium since 2007 (USDI 2009). For most new investors, the headline corporate tax rate is a key first criterion when deciding whether a country makes the shortlist of countries in which to invest.

The introduction of lower corporate tax rates among OECD Member States has revealed that this will not necessarily result in lower tax revenue for governments in the long term, as lower rates are most often offset by increased economic activity in the corporate sector. It took only one quarter after a similar exercise in the 1990s for tax revenues to start climbing again. Lowering corporate taxation in Belgium therefore promises accelerated economic growth and employment without compromising either government tax receipts or the broader social agenda.

The notional interest deduction (NID) is a critical tax incentive for attracting investors. Indeed, despite the introduction of a cap on the NID rates in 2009, this measure remains a significant tool for reducing the effective income tax rate on corporate investments. Nevertheless, given the comparisons which prospective investors traditionally make with other potential locations, Belgium would still benefit from lowering its relatively high nominal corporate tax rate. Indeed, any incremental income made by the corporate taxpayer remains taxable at the marginal rate of nearly 34 %, which is a disincentive for corporations already present in Belgium when planning to increase their production capacity or establishing new profit-generating activities.

While many may feel that business is not paying enough, the above measures represent a positive step towards addressing Belgium’s image issue as a very high tax country. In the World Economic Forum’s recent Global Competitiveness Report (2009-2010), Belgium ranked 130 out of 133 countries in the “Extent and effect of taxation” category.

Streamlining its corporate taxation system would therefore enable Belgium to market itself in a way that is easier for potential investors to understand. Furthermore, a stable business climate encourages companies to make new investments, thereby providing economic growth and employment.

AmCham Belgium believes that implementing bold measures such as these is essential if the steady decline in foreign investment activity into Belgium is to be stopped. This issue has recently been widely covered in the media as a result of the publication of investment surveys from IBM and Ernst & Young.

The US-Belgian business community represents a significant percentage of the private sector investment and employment in Belgium and the ability to propose a competitive corporate tax regime will more than ever determine where future investments are made, especially for the smaller countries.

 

Scott Beardsley
President
AmCham Belgium