The Belgian tax authorities have been ordered to repay €200 million wrongly collected since 2011 from a Finnish group with an office in Belgium.
The Finnish group Fortum is a state-owned energy company which set up a subsidiary, Fortum EIF in Belgium. In 2008 the tax authorities claimed the office was a shell company set up as a Belgian partnership in order to be able to benefit from Belgium’s notorious notional interest deduction.
Officially known as the deduction for risk capital, this section of Belgian corporate tax law was created to remove the distinction between borrowing to finance business risks – where interest payments would be tax-deductible – and using equity capital for the same purpose.
In the latter case, where there is no interest repayment, the new section introduced in 2006 allowed companies to treat that equity financing as debt financing, and to deduct the notional interest they would have paid on borrowed capital from their taxes.
Fortum denied the accusation, but continued paying the bills it received starting in 2011 from the tax office, all the while challenging the matter in court.
Finally, after the case had gone all the way to the court of appeal in Ghent, Fortum won. The court ruled that Fortum EIF was not a shell company, and the tax revenues had been collected unlawfully. The tax authorities must now pay back what Fortum paid over the years, as well as the so-called moratorium interest paid when the taxman charges too much.
Over the years in question, that interest amounts to 7% up to 2019, and 2% since then.
According to Fortum’s lawyers, the court’s ruling sets an interesting precedent for multinationals who work in Belgium with financing partnerships.
“It is regrettable that with actions such as the one against Fortum, the tax authorities have created legal uncertainty, and driven capital out of Belgium,” they said.