On Tuesday 28 November, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) will vote on the draft report on the ‘DEBRA’ directive on an allowance to reduce the tax distortion in favour of indebtedness and on the limitation of interest deductibility for corporation tax purposes. In their compromise amendments, which EUROPE was able to obtain, MEPs are expected to call for greater proportionality according to the size of the company.
Introduced in May 2022 (see EUROPE 12950/1), the aim of this legislation is to give companies easier access to the financing they need, by introducing a tax exemption that will give equity capital the same tax treatment as debt. Thus, increases in a taxpayer’s equity from one tax year to the next will be deductible from the tax base, as is the case for debts.
The directive, which has been blocked in the EU Council since December 2022 (see EUROPE 13098/15), was the subject of divisions within the European Parliament (see EUROPE 13133/17).
The MEPs now seem to be in agreement. According to the compromise amendments, they have added proportionality to capital allowances based on company size, contrary to the initial text. It states that the equity allowance is deductible, for ten consecutive tax periods, from the tax base of any small or medium-sized enterprise (SME) or ‘medium-sized group’ subject to corporation tax, up to a maximum of 30% of earnings before interest, tax, depreciation and amortisation (‘EBITDA’).
A ‘medium-sized group’ would be defined by at least two of the following three criteria during the financial year: - total assets of €20 million a year; - net sales of €40 million; - 250 employees on average.
For large companies, the number of consecutive tax periods would be limited to seven.
MEPs are also expected to call on Member States to ensure that taxpayers can defer, for up to three tax periods, the part of the capital allowance that exceeds the above-mentioned percentages of EBITDA in a tax period, compared to five in the original text.
Finally, MEPs should also call on Member States to ensure that the taxpayer can carry forward the excess of the capital allowance over the following periods: - for a maximum of three tax periods, if the taxpayer is a large company or group; - with no time limit, if the taxpayer is an SME or a medium-sized group.
The duration for large companies and groups would also be restricted.
See the compromise amendments: https://aeur.eu/f/9s6 (Original version in French by Anne Damiani)