The Commission Proposes Tax Incentive for Equity to Help Companies Grow, Become Stronger and More Resilient
The European Commission (“the Commission”) has proposed a debt-equity bias reduction allowance, or DEBRA, to help businesses access the financing they need and become more resilient. This measure will support businesses by introducing an allowance that will grant equity the same tax treatment as debt.
The proposal stipulates that increases in a taxpayer's equity from one tax year to the next will be deductible from its taxable base, similar to what happens to debt.
This initiative is part of the EU strategy on business taxation, which aims to ensure a fair and efficient tax system across the EU, and contributes to the Capital Markets Union, making financing more accessible to EU businesses and promoting the integration of national capital markets into a genuine single market.
Excessive debt levels make companies vulnerable to unforeseen changes in the business environment. Therefore, reducing the over-reliance on debt-financing, and supporting a possible rebalancing of companies' capital structure, can positively affect competitiveness and growth.
The combined approach of equity allowance and limited interest deduction is expected to increase investments by 0.26% of GDP and GDP by 0.018%. An allowance for equity financing can facilitate bold investments in cutting-edge technologies, notably for start-ups and SMEs.
You can reach further information here.
Zumbul Attorneys at Law