The statutory formula: equity plus four times EBITDA

The formula exists as a fallback mechanism

Belgian tax rules on capital gains from financial assets need a reference value for shares in companies that are not listed on a stock exchange. Since there is no market price to observe, the legislator built a default calculation into the framework: equity plus four times EBITDA, both taken from the company's annual accounts.

This formula is not meant to represent an economic valuation. It is a mechanical fallback that applies automatically whenever a shareholder does not hold an independent valuation report for the relevant reference date. Its purpose is administrative simplicity, not precision.

Equity and EBITDA come straight from the accounts

Equity is the balance sheet figure representing the company's net assets, as filed with the National Bank of Belgium. EBITDA is derived from the profit and loss account, before interest, tax, depreciation and amortisation, without further adjustment for one-off items or non-recurring costs.

Because both inputs are taken as reported, the formula does not distinguish between a company with stable recurring earnings and one whose results were affected by a exceptional year, a change in accounting policy, or an unusual balance sheet position.

The multiple of four is fixed, not sector-specific

Applying the same multiple of four to every unlisted company treats a capital-intensive industrial business the same as a low-asset services company, regardless of growth prospects, margin stability or capital structure. Two companies with identical EBITDA can have very different underlying values.

The formula also does not account for net debt, surplus cash sitting on the balance sheet, or non-operating assets such as real estate held for investment purposes. These elements can materially change what a share is actually worth.

Why shareholders look beyond the formula

For shareholders whose companies do not fit the profile implicit in the formula, the gap between the statutory outcome and a reasoned valuation can be significant. This is particularly relevant for holding structures, property companies, or businesses with volatile historical earnings.

An independent valuation report, prepared for the relevant reference date, replaces the formula with a value built from the company's own financial history, its balance sheet composition and recognised valuation methods.

Understanding the formula before deciding whether to replace it

Reviewing how the statutory formula would apply to a given company, using the last filed annual accounts, is a useful first step before deciding whether an independent report is warranted. It clarifies what is at stake and whether the fallback figure is a reasonable approximation or a poor fit.