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The notional interest deduction and job growth

The notional interest deduction (NID) not only contributed to the Belgian economy but it also helped create at least 20,577 jobs since its implementation in 2006, according to a KU Leuven study, which directly challenges the negative preconceptions of the NID. 

A research paper of Vives, a study group at KU Leuven, illustrates how the NID has led to more than 20,000 jobs within Belgian business entities of European multinationals. Compared to the companies’ affiliates in The Netherlands, France and Germany, employment in these business entities in Belgium increased by 4.9% between 2006 and 2014. These figures may be even higher as Belgian and non-European groups, such as Belgian affiliates of US groups, were not included in the study.  

These jobs are created through inflows of domestic and foreign capital, which are encouraged by the NID. This tax scheme enables the equity of a company to qualify as base for tax relief. New capital and investment leads to a virtuous circle and spillover effect of technological know-how, productivity, and jobs. Without this tax incentive, many of these jobs may not have been created.

These figures support the Chamber’s position that the NID, set against the high cost of labor and a high tax burden, is a key attraction for businesses in Belgium. Maintaining this tax scheme provides stability and certainty, which are of key importance to international investors.  

In a world dominated by instability, companies need regulatory predictability to plan and to invest. This is why AmCham Belgium recommends, in its recent Tax Horizon 2020 position paper, maintaining the NID while lowering the corporate tax rate.

"The NID is one of the few tax incentives that stand the test of the OECD's anti base-erosion and profit shifting project (BEPS). At the same time, several countries are introducing a similar regime now. Therefore, it would be good if the Belgian government maintained the NID going forward, in addition to the announced reduction of the stated corporate income tax rate."

- Werner Heyvaert, Chair of AmCham Belgium's NID taskforce

In the long run, a predictable fiscal framework which fosters capital-intensive investments will help attract companies’ headquarters and finance centers to Belgium, which can only be positive for the Belgian economy.

Photo credit: flickr / caleb roenigk