Debt-equity bias reduction allowance (DEBRA)
The European Commission has published an inception impact assessment on the initiative to reduce the debt- equity tax bias in the EU. This initiative, which was announced as part of the corporate tax reform proposal in the recent Communication for Business Taxation of the 21 Century (See MIT News 19 May 2021), would support the action plan for the Capital Market Union, which acknowledges that the corporate sector will enter the post-COVID recovery period with higher debt levels and need more equity investment.
The Inception Impact Assessment recognises that six Member States (Belgium, Cyprus, Italy, Malta, Poland and Portugal) already have legislative measures in place, in order to tackle the tax induced debt-equity bias. However, “the lack of coordination between Member States may lead to tax planning opportunities, resulting in tax evasion and misallocation of investments in the single market. Country specific rules also imply higher compliance costs for businesses active in cross border operations in the single market.”
Feedback on this initiative may be provided up until 12 July 2021.