Allowance for corporate equity and financial structure of Belgian small-and-medium-size enterprises (SMEs)

In Belgium, there is no more tax distortion between choices of business financing. Since the Law of June 22, 2005 Belgium has joined other countries in which the tax law allows firms to benefit from an "allowance for corporate equity" (ACE).

The objective of this research is to evaluate the impact of ACE on the financial structure of Belgian small-and-medium-size enterprises (SME) in order to highlight the possible existence of a fiscal lever.

To limit the biases linked to the rationing of capital as a result of the financial crisis, we compare first the dynamic evolution of the financial structure of the Belgian firms over the period 2006-2015 by focusing on three sub-periods: 2006-2008, 2009-2012 and 2013-2015. We give then an international scope to this comparison by including SMEs from countries close to Belgium (France, Germany, Netherlands, and United Kingdom) and within which there is no ACE. The final sample contains 230, 134 SMEs. This comparison allows better understanding of the fiscal advantage linked to the ACE of firms evolving in a relatively unstable economic environment further to the financial crisis of 2008.

This research is relevant given the economic and political context in which Belgium operates and the uncertain future of the Belgian ACE.

The originality of this research is twofold: the long study period and consideration of the effects of the financial and economic crisis on the financing structure of Belgian SMEs. To estimate the fiscal advantage led by the introduction of the notional interests in the Belgian tax system, we use a methodology in two phases. First, we carried out a comparison of the financial structure of the firms with the database from 2006 until 2015. The test used to highlight these possible changes in the financial structure of Belgian SMEs is the t-test allowing comparison of averages on paired samples. Second, econometrics techniques panel data were selected for measuring the fiscal advantage led by the ACE on the financial structure of firms.

The results of this research, even though they confirm the existence of a positive fiscal lever for the tax deduction for venture capital on the financing structure of Belgian SMEs, do not allow the extent of this leverage to be clearly quantified. The comparative evolution of financing structures over the time period of Belgian, French, German, Dutch and English SMEs shows a strong similarity in the overall evolution of financing.