DEBRA

Tax - tax avoidance - European Union (EU).

Abbreviation for the Debt-equity bias reduction allowance tax initiative of the EU.

The EU's DEBRA tax initiative aims to encourage companies to finance themselves with equity rather than with debt financing.

Reducing the risk of bankruptcies

"Over-indebtedness could threaten the stability of the financial system and increase the risk of bankruptcies, which would in turn increase unemployment.

"The [DEBRA] initiative will introduce an allowance for equity-financed new investment, to mitigate debt bias.

"The whole scheme will incorporate a number of robust anti-tax avoidance rules to ensure tax fairness."

DEBRA - proposal for a Directive - European Commission.

DEBRA - what we're consulting on

"The objective of the consultation is to collect views and opinions... on the perception of the tax induced debt-equity bias and the possible solutions to tackle it.

To this aim, the consultation will gather information and knowledge on the existence and magnitude of indebtedness due to the tax debt bias and potential impacts of the policy options...

The information gathered through the consultation will comprise the definition of equity, the reasons for indebtedness of EU companies, possible solutions to address the tax induced debt-equity bias, the appropriate level of the notional interest rate for an allowance on equity, or the need for a higher rate for SMEs.

Concerning the anti-abuse framework, the input gathered through the consultation should provide us with information on stakeholders’ views on an effective, proportionate and dissuasive framework of anti-abuse rules linked to the measure."

DEBRA - consultation - European Commission.

DEBRA will contribute to re-equitisation

"The green and digital transitions arising from the EU decision to move towards a climate neutral and digital economy will require large investments in new technologies and innovation that imply a need for capital.

In such a context, equity financing facilitates risky investments in breakthrough technologies. An allowance for equity financing would also contribute to the re-equitisation of companies.

Companies with a solid capital structure are less vulnerable to shocks, and more prone to make investments and take risks.

This can positively affect competitiveness, growth and ultimately employment."

DEBRA - consultation - European Commission - Commission expert group Platform for Tax Good Governance - October 2021.

See also

• Allowance
• Bankruptcy
• Business in Europe: Framework for Income Taxation
• Capital structure
• Debt
• Debt equity ratio
• Debt for equity swap
• Digital economy
• Directive
• Equity
• European Commission
• European Union
• Notional
• Re-equitisation
• SME
• Tax
• Tax arbitrage
• Tax avoidance
• Tax harmonisation
• Transition

External link

Debt-equity bias reduction allowance - European Commission