The European Economic and Social Committee (EESC) has published its opinion on the European Commission's Proposal for a Council Directive introducing a debt-equity bias reduction allowance (DEBRA). As previously reported, the allowance is meant to incentivize equity investment, rather than debt, by providing 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 with debt. The allowance would be computed based on the difference between net equity at the end of the current tax year and net equity at the end of the previous tax year, multiplied by a notional interest rate. The notional interest rate is the 10-year risk-free interest rate for the relevant currency, increased by a risk premium of 1% or, in the case of SMEs, a risk premium of 1.5%. The allowance is deductible for 10 consecutive tax years, as long as it does not exceed 30% of the taxpayer's taxable income. If the allowance is higher than the taxpayer's net taxable income, the taxpayer may carry forward the excess allowance without a time limitation. Taxpayers will also be able to carry forward their unused allowance that exceeds 30% of taxable income, for a maximum of 5 tax years. On the debt side, the proposal also introduces a reduction of debt interest deductibility by 15%.
The key points of the EESC opinion are provided as follows: