On Thursday 12 January, MEPs on the Committee on Economic and Monetary Affairs (ECON) discussed the draft report by Luděk Niedermayer (EPP, Czech) on the Commission’s ‘DEBRA’ (debt-equity bias reduction allowance) proposal for a deductible tax incentive to reduce debt.
While the EPP and Renew Europe groups are in favour, the Greens/EFA group does not support it.
Presented in May, the measure aims to help businesses access the finance they need to become more resilient by introducing a franchise that will give equity the same tax treatment as debt (see EUROPE 12950/1).
“This asymmetry and tax treatment is one of the factors favouring the use of debt over equity for the financing of investment”, Mr Niedermayer said.
He referred to two studies that found that many companies that rely on debt financing experience difficulties when faced with unexpected losses created by prices, particularly small and medium-sized enterprises (SMEs).
The rapporteur has, however, proposed some readjustments. “The Commission calibration of the proposal for SMEs doesn’t seem to be sufficiently reflecting the high cost of capital and fragility of the smaller firms”, he lamented.
He therefore suggested an increase in the allowance for equity financing and a longer tax deductibility period. In his view, the phased introduction of the rule limiting interest deduction and the permanent full deduction of interest for small loans ensure that the proposal will not have a negative impact on very small SMEs that cannot effectively use equity financing.
Gilles Boyer (Renew Europe, French) expressed his support for Mr Niedermayer’s proposals.
Evelyn Regner (S&D, Austrian), represented by Spain’s Jonás Fernández, expressed concern about the cost of the measure, estimated by the European Commission at €167 billion. “The potential tax losses of DEBRA have not escaped the attention of the Member States. For this reason, the Council has decided to put the proposal on hold for the time being”, Mr Fernández stressed.
The Council of the EU decided to suspend this proposal in order to reassess it in the context of other Commission proposals (see EUROPE 13087/25).
Mr Fernández added that the S&D group will pay close attention to the special balance that tax reforms require.
Claude Gruffat (Greens/EFA, French) said his group was not in favour of the Commission’s proposal. He mentioned two important points for his group: - limiting or eliminating notional interest deductions; - focusing on further limiting interest deductions for large companies.
Amendments to the draft report must be tabled by Wednesday 18 January.
Read the report: https://aeur.eu/f/4v9 (Original version in French by Anne Damiani)