Members' Research Service By / October 6, 2022

Debt-equity bias reduction allowance (DEBRA) [EU Legislation in Progress]

The European Commission’s initiatives concerning corporate income taxation are part of the Commission’s broader taxation agenda, which aims at a tax system guided by the principles of fairness, efficiency and simplicity in order to strengthen the single market, alongside a balanced tax revenue mix.

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Written by Pieter Baert (2nd edition, updated on 21.03.2023).

In most countries in the European Union (EU) and in the rest of the world, debt is treated more favourably from a tax perspective than equity, with interest payments on loans generally being tax deductible. In contrast, costs related to equity financing, such as dividends, are mostly non-tax deductible. This unequal treatment of debt and equity leads to a bias towards debt in businesses’ investment decisions and can lead to high levels of indebtedness in the EU corporate sector.

On 11 May 2022, to support the creation of a harmonised tax environment that places debt and equity financing on an equal footing in the EU, the European Commission tabled a proposal for a debt-equity bias reduction allowance (DEBRA). The directive introduces both a tax allowance on increases in company equity and a limitation of the tax deductibility of interest payments.

To enter into force, the proposal requires the Council’s unanimous support, following consultation with the European Parliament and the European Economic and Social Committee. In December 2022, the Council stated that negotiations would be temporarily ‘suspended’ and reassessed at a later stage in the broader context of other upcoming reforms in the area of corporate taxation.


Proposal for a debt-equity bias reduction allowance and limiting the deductibility of interest for corporate income tax purposes
Committee responsible:Economic and Monetary Affairs (ECON)COM(2022)0216
Rapporteur:Luděk Niedermayer (EPP, Czechia)2022/0154(CNS)
Shadow rapporteurs:Evelyn Regner (S&D, Austria)
Gilles Boyer (Renew, France)
Claude Gruffat (Greens/EFA, France)
Gunnar Beck (ID, Germany)
Michiel Hoogeveen (ECR, Netherlands)
José Gusmão (The Left, Portugal)
Consultation procedure (CNS) – Parliament adopts a non-binding opinion
Next steps expected: Vote in committee

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