Last year the European Commission announced an initiative called DEBRA, i.e., Debt-equity bias reduction allowance. The purpose of this initiative is to motivate companies to prioritize the equity financing of their investments over the debt financing which can lead to the over-indebtedness, bankruptcy risk and consequently to the increase of unemployment. 

The current setup of the tax systems across the EU Member States allows reductions of the income tax base by interest on loans under the certain conditions, however, the equity financing does not carry any tax advantage. With the implementation of the DEBRA, this approach could change, and the equity financing would bring a notional interest deduction which is a similar tax advantage as flows from the debt financing.

The European Commission is now considering the potential impacts of this initiative taking into account the feedback from the public consultation. According to the plan, the legislative proposal should be published during the first quarter of 2022.

We will keep you informed about the development in this matter.

Should you have any questions regarding the DEBRA, please do not hesitate to contact us.