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 (1st edition).

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 to loans generally being tax deductible. In contrast, costs related to equity financing, such as dividends, are mostly non-tax deductible. This unequal treatment between debt and equity induces a bias towards debt in businesses’ investment decisions and can therefore lead to high levels of indebtedness in the European 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 across the EU, the European Commission presented a proposal for a debt-equity bias reduction allowance (DEBRA). The DEBRA lays down rules on both a tax allowance on increases in equity and on a limitation of the tax deductibility of interest payments.


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)
Gunnar Beck (ID, Germany)
Michiel Hoogeveen (ECR, Netherlands)
Consultation procedure (CNS) – Parliament adopts a non-binding opinion
Next steps expected: Publication of draft report

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