Voka wants to exchange the notional interest deduction for a substantial reduction of corporate tax

In an interview in the newspaper De Tijd, managing director Jo Libeer of the Flemish employers’ organisation Voka speaks in favour of exchanging the notional interest deduction for a substantial reduction in the base rate of corporate tax. As could be expected, this led to a considerable uproar. Marc Leemans, chairman of the Christian union ACV, seemed willing to engage in talks after his first amazement. The Federation of Belgian Enterprises VBO, the federal employer’s organisation, criticized the idea severely, however. The notional interest deduction, introduced by the Verhofstadt government in 2007, entitles businesses to deduct from their taxable income a fictitious interest calculated on the basis of their capital. This led to the income from corporate tax in Belgium dropping from 3.5% to 2.8% of the GDP. Voka would now like to see the notional interest deduction traded for a drop from 33% to 20% in the nominal rate of corporate tax. As the average rate of corporate tax in Europe is 22.4%, Libeer believes that : “If you would like to increase the competitive power of your country, you must remain below this percentage.” Voka is nevertheless only willing to negotiate on the deduction of the notional interest once a breakthrough on the reduction of the nominal rate has been reached. He further admits that the notional interest deduction has been instrumental in attracting various multinationals to establish their businesses in Belgium, saying that “is a factor that should be considered”. The organisation is further prepared to negotiate other fiscal rebates and deductions for businesses in exchange for a more transparent and simplified system. But if a business should run at a loss during one year, the loss should be transferable to the next year. “ Economically this makes sense,” he believes. “In the end we advocate four principles: Firstly, a viable simplification. Secondly, transparency and predictability. Thirdly, wise treatment of  own and foreign investments. And finally, if you only attack the notional interest deduction like the unions are currently doing without linking it with a nominal reduction, you have an obvious problem.” Libeer believes his proposal enjoys the support of the majority of businesses within Voka. A minority, on the other hand, points to the risks associated with such a notion. Libeer admits there are risks, saying: “We at Voka are trying to move ahead. There will obviously be forces who point to the gigantic problems we could encounter. And that’s right. But we cannot continue with a system that has  complexity as its most competitive advantage.”