The European Commission has recently published an EU Directive proposal regarding a debt-equity bias reduction allowance (DEBRA) and a limitation of the tax deductibility of exceeding borrowing costs (the proposal).

This proposal, published 11 May 2022, is one of the Commission’s key actions on corporate tax, as set out in the Communication on Business Taxation for the 21st Century.

The proposal aims to address the disparity in treatment between debt and equity financing by introducing a tax deductible allowance for equity investments over a 10-year period, as well as further limiting the ability to deduct interest on debt investments....