ARTICLE · 20 MAY 2022

DEBRA – Potential New Tax Directive

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On 11 May 2022, the European Commission published the first draft of the ‘debt-equity bias reduction allowance' directive (DEBRA). The draft proposal is available here.

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On 11 May 2022, the European Commission published the first draft of the 'debt-equity bias reduction allowance' directive (DEBRA). The draft proposal is available here.

The Commission claims that the tax systems of many Member States disproportionately favour debt funding by facilitating tax deductions for debt but not for equity funding. The Commission claims that this bias leads to unsustainable debt levels and higher insolvency risks for businesses. There is also a view that a debt-equity bias among European taxpayers may be tax-motivated. In short, DEBRA is designed to encourage greater equity funding and discourage excessive debt funding.

What's proposed?

The Commission proposes two new tax measures as part of DEBRA.

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