The European Commission is challenging Belgium’s notional interest deduction regime claiming that it violates the free movement of capital and the freedom of establishment. 
The notional interest deduction, which became effective as from the beginning of 2007, allows Belgian taxpayers (companies and branches) a tax deduction corresponding to an amount of deemed interest on their equity. With this regard, equity is defined as the accounting equity minus certain deductions, including the net asset book value of branch operations and real estate located in tax treaty countries. The notional interest rate is determined based on the 10-year Belgian government bond rate.
According to the European Commission, under the current regime, the net equity corresponding to the net value of a branch or real estate located in a tax treaty is excluded from the basis on which the notional interest deduction is computed. This exclusion does not apply to similar investments made in Belgium.
The EU Commission considers these limitations in breach of the freedom of capital (with respect to real estate) and the freedom of establishment (with respect to branches) principles, because Belgian companies might restrain from setting up a branch or investing in real estate in a foreign country. On the other hand, the European Commission has not stated that the regime is incompatible with EU state aid rules.
It should be noted that the Commission is not challenging the entire notional interest deduction regime. Also, since infringements of the EU freedoms have no retroactive effect and no challenge is being made under EU state aid rules, there is no risk that notional interest deductions claims that already have been made will be canceled or may have to be refunded.
On the contrary, if the infringement procedure is successful, and depending the way the Belgian government would amend the regime, might imply an increase of the notional interest deduction against Belgian taxable income by abolishing the above restrictions from the notional interest deduction basis.