EU proposes new Directive on debt-equity bias reduction allowance

On 11 May 2022, the European Commission published a draft Directive proposing to introduce harmonized rules in all EU Member States for a more equal treatment of equity and debt for corporate income tax purposes. Under the proposed Directive, an allowance on equity will be introduced to favor equity investments. Deductibility of interest expenses will however be further restricted. The proposed debt-equity reduction allowance (also referred to as “DEBRA”), if adopted as a Directive, should be transposed into Member States’ national law by 31 December 2023 and come into effect as of 1 January 2024.

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