Taxation: Commission launches public consultation on debt-equity bias reduction

The European Commission has published a public consultation on a new initiative to mitigate the debt-equity bias in corporate taxation. The COVID-19 pandemic may contribute to a significant increase in companies’ stock of debts. The current pro-debt bias of tax rules, where businesses can deduct interest attached to debt financing, but not the costs related to equity financing, can encourage companies to accumulate debts. The initiative was first announced as part of the Communication on Business Taxation for the 21st Century. A future Commission proposal would introduce an allowance for new investments financed by equity. The whole scheme would incorporate a number of robust anti-tax avoidance rules to tackle the use of artificial and aggressive tax structures used by taxpayers to reduce their tax liability. Stakeholders are invited to provide input by the 7 October deadline. More information is available here.