Issue link: https://maltatoday.uberflip.com/i/1467489
10 NEWS 12.5.2022 THE European Commission has today proposed a debt-equity bias reduction allowance, or DEBRA, to help business- es access the financing they need and to become more resilient. is measure will support businesses by introducing an allowance that will grant to equity the same tax treatment as debt. e proposal stipulates that increases in a taxpayer's equity from one tax year to the next will be deductible from its taxable base, similarly to what happens to debt. is initiative is part of the EU strategy on business taxation, which aims to en- sure a fair and efficient tax system across the EU, and contributes to the Capital Markets Union, making financing more accessible to EU business and promot- ing the integration of national capital markets into a genuine single market. e current pro-debt bias of tax rules, where businesses can deduct interest at- tached to a debt financing – but not the costs related to equity financing – can incentivise companies to take on debt rather than increase equity to finance their growth. Excessive debt levels make compa- nies vulnerable to unforeseen changes in the business environment. e total indebtedness of non-financial corpo- rations in the EU amounted to almost €14.9 trillion in 2020 or 111% of GDP. Against this background, it is worth stressing that businesses with a solid capital structure may be less vulnerable to shocks, and more prone to make in- vestments and innovate. erefore, reducing the over-reliance on debt-financing, and supporting a possible rebalancing of companies' cap- ital structure, can positively affect com- petitiveness and growth. e combined approach of equity allowance and limit- ed interest deduction is expected to in- crease investments by 0.26% of GDP and GDP by 0.018%. Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said: "Europe's com- panies should be able to choose the fi- nancing source that is best for their growth and business model. By making new equity tax-deductible, just as debt is at present, this proposal reduces the incentive to add to their borrowing and allows them to make financing deci- sions based on commercial considera- tions alone. As part of the EU's agenda to ensure a fair and efficient tax system, it will make financing more accessible for EU businesses, particularly start-ups and SMEs, and help to create a genuine single market for capital. is will be important for the green and digital tran- sitions, which require new investments in innovative technologies that could be funded by increased equity." Paolo Gentiloni, Commissioner for Economy, said: "In these dark and un- certain times, we must act not only to help our companies cope with their im- mediate challenges, but also to support their future development. Today we are taking action to make the tax advantag- es of equity comparable to those of debt for firms wanting to raise capital. We want to give a shot in the arm to inno- vative start-ups and SMEs throughout the EU. is harmonised solution to the debt-equity bias will make Europe's business environment more predictable and competitive, spurring the develop- ment of our capital markets union. Our proposal will help companies build up more solid capital, making them less vulnerable and more likely to invest and take risks. And that will be good news for jobs and growth in Europe." e green and digital transition re- quires new investments in innovative technologies. Taxation has an important role to play in encouraging and enabling businesses to develop and grow sustain- ably. An allowance for equity financing can facilitate bold investments in cut- ting-edge technologies, notably for start-ups and SMEs. Equity is particu- larly important for fast-growing innova- tive companies in their early stages and scale-ups willing to compete globally. Corporate taxation: Commission proposes tax incentive for equity to help companies grow Paolo Gentiloni, EU Commissioner for Economy and Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People