Commission proposes tax incentives in favor of using equity to help businesses grow

The European Commission today proposed a Deductible Reduction in Debt Encouragement Tax Incentives, or DEBRA, so companies can access the financing they need to become more flexible. This measure will support businesses by creating a lien that gives equity the same tax treatment that applies to debt. The proposal states that increases in a taxpayer’s equity from one tax year to the next would be deducted from his tax base, as would debt.

This initiative is part of the EU Business Tax Strategy, which aims to ensure a fair and efficient tax system across the EU, and contributes to the union of capital markets, making financing more accessible to EU companies and promoting the integration of national capital markets into a true single market.

Tax rules currently contain debt-boosting incentives, which allow companies to deduct the benefits associated with debt financing, rather than the costs associated with financing equity, and may induce them to borrow rather than fund. Increase their own money in order to finance their development. Excessive debt levels make companies vulnerable to unexpected changes in the economic environment. Total non-financial corporate indebtedness in the European Union amounted to nearly €14.9 trillion in 2020, or 111% of GDP. In this context, it should be emphasized that companies with a sound financial structure may be less vulnerable to shocks and more likely to invest or innovate. Therefore, reducing excessive reliance on debt financing and supporting a potential rebalancing of the company’s capital structure could have a positive impact on competition and growth. The approach of combining the equity deduction and the interest deduction limits is expected to increase investment by 0.26% of GDP and GDP by 0.018%.

Valdis DombrovskisExecutive Vice President of Economy Fit for People said:Companies in Europe must be able to choose the most appropriate source of funding for their development and business model. By making equity infusions tax-deductible, as is currently the case with debt, this proposal reduces incentives to take on additional debt and allows companies to make financing decisions based exclusively on business considerations. As part of the EU’s program to ensure a fair and efficient tax system, it will facilitate access to financing for EU companies, particularly start-ups and SMEs, and contribute to the creation of a true single capital market. This is an important initiative for green and digital transformations, which requires new investments in innovative technologies that can be financed through raising capital.»

Paulo GentiloniThe Economics Commissioner added: “In these dark and uncertain times, we must act not only to help our business deal with immediate difficulties, but also to support its future development. We are now taking steps to ensure that the tax benefits applicable to equity are comparable to those applied to corporate debt that Want to raise capital We want to give a boost to innovative start-ups and SMEs across the EU This coordinated solution to address debt-enhanced incentives will increase the predictability and competitiveness of the business environment in Europe, which will have a stimulating effect on the development of a market union Our capital. Our proposal will help companies get stronger capital; this will make them less vulnerable and more vulnerable to investment and risk, which will also be good news for jobs and growth in Europe.”

Green and digital transformations require new investments in innovative technologies. Taxes play an important role in encouraging businesses to develop and sustainably grow and providing them with the means to do so. A franchise applied to equity financing can facilitate bold investments in cutting-edge technologies, especially for start-ups and SMEs. Equity is particularly important for high-growth, early stage innovative companies and for expanding companies that want to compete globally.

Context

DEBRA is part of the 21st Corporate Tax Communication ExtensionAnd Century, which sets out a long-term vision to create a business environment and a fair and sustainable tax system in the European Union and sets out targeted measures to promote productive investment and entrepreneurship and ensure efficient taxation. La proposition contribue égallement au plan d’action de l’UE pour l’union des marchés des capitaux (UMC), qui vise à aider les entreprises à lever les capitaux dont elles ont besoin, en particulier au cours de la période postérieure à la Epidemic. CMU encourages long-term investments to support the digital and sustainable transformation of the EU economy.

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