Tom O’Shea has published an interesting paper on “Belgian Notional Interest Deduction Rules Challenged Before the ECJ”, Tax Notes International, March 10, 2014, p. 915
As Tom summarises, «in Argenta Spaarbank NV v. Belgische Staat (C-350/11), Belgian tax rules concerning notional interest de- ductions (NIDs) were successfully challenged before the European Court of Justice on the grounds of in- compatibility with the freedom of establishment. Under the contested Belgian rules, the net value of the assets of a permanent establishment situated in an EU member state other than Belgium was not taken into account in calculating the NID when the profits of that PE were exempt from tax in Belgium by virtue of an income tax treaty. On the other hand, the net value of the assets of a PE situated in Belgium was taken into account» (p. 915).
The judgment considers that the restriction is not justified on the balanced allocation of taxing rights. In Tom’s words:
«some threat or jeopardy to the balanced allocation of taxing rights must be demonstrated. This is in keeping with the Court’s jurisprudence sinceMarks & Spencer, in which it has developed this justification.
In Argenta, the Court concluded that:
granting the tax advantage at issue… would jeopardise neither the right of the Member State in whose territory the company to which the permanent establishment belongs is established nor that of the Member State in whose territory the permanent establishment is situated to exercise the power to tax in relation to activities carried out in its territory and would not result in the shifting of income normally taxable in one of those Member States to the other
Accordingly, the Court rejected the justification based on the balanced allocation of taxing rights between the member states and held that the Belgian rules in question amounted to a restriction on the freedom of establishment contrary to article 49 of the TFEU» (p. 919).
Many thanks, dear Tom for your clarifying comments.