Publication of the proposal for a directive providing for an allowance for reducing the bias linked to indebtedness… – Tax authorities

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On May 11, 2022, the European Commission published a proposal for a Directive (the Directive) providing for a Debt-to-Equity Bias Reduction Allowance (DEBRA) with the aim of creating a level playing field for debt and equity. capital, from a tax point of view, and to help companies to acquire a solid financing structure.

The proposal would apply to taxpayers subject to corporation tax in an EU Member State and, under certain conditions, would provide for a deduction from a taxpayer’s tax base in respect of an increase in equity in a given tax year. The directive would also provide specific anti-abuse measures to ensure that arrangements are not put in place to artificially benefit from the proposed new equity deduction. In addition, the Directive would introduce a new limitation on interest deductibility, which should be applied alongside the interest limitation rules under the EU Anti-Tax Avoidance Directive (Directive (EU) 2016/1164 – ATAD) .

Malta is one of six EU member states which, since 2017, have provided for an equity deduction, known as the “notional interest deduction” or “NID”. While the Commission is proposing that the provisions of the Directive apply from 1 January 2024, it is also proposing a deferral period for Member States which already currently apply a tax relief on equity financing under national law. . Thus, it would need to be considered to what extent this deferment period might apply in Malta and the potential implications of DEBRA on the current NID framework. What position Malta and other EU member states will take on DEBRA remains to be seen. Ultimately, the success of the adoption of this proposal depends on the unanimous approval of the Council.

For more details on this proposed directive, you can refer to this EU Tax Flash prepared by KPMG’s EU Tax Centre.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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