EU Proposal to Implement Debt-Equity Bias Reduction Allowance (‘DEBRA’)

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.The restriction on deducting debt interest will interact with the existing interest limitation rule (ILR) under Article 4 of the Anti-Tax Avoidance Directive (ATAD).The proposed rules would apply to taxpayers that are subject to corporate income tax in one or more EU Member States, including permanent establishments of non-EU head offices. However they do not apply to financial undertakings (as exclusively defined in the proposal).This session will take you through the proposed provisions and generate discussions in relation to their interaction with other provisions.