Incentive for equity financing success L’Echo and De Tijd reported on Wednesday (13 July) that the deduction of so-called notional interest in corporate taxation has created more than 20 000 jobs in Belgium since the measure entered into force on 1 January 2006. The reporting is based on figures form Vives, a research group at the economics department of KU Leuven.
The tax measure refers to the deduction of a certain percentage of equity and was introduced to equalize the difference between equity and debt financing where the actual interest paid on the loan can be deducted.
The National Bank had initially prognosticated that 6 700 new jobs would be created between 2006 and 2011 thanks to the notional interest deduction. Vives notes that employment in multinational companies with subsidiaries in Belgium increased by 4.9% over the period 2006-2014 and this explains the extra jobs.
The calculation does not take into account the budgetary cost of the tax measure. “The notional interest reduced the effective tax rate from 29.5% to 25.7% in 2006, but resulted also in a broadening of the tax base,” reported professor Joep Konings and researcher Cathy Lecocq.