European Commission proposes Directive to tackle debt-equity bias in taxation

Executive summary

On 11 May 2022, the European Commission (the Commission) published a legislative proposal on the Debt-equity bias reduction allowance (DEBRA) initiative. The proposal sets forth rules to address the tax-related asymmetry in treatment of debt and equity, with the aim to encourage companies to finance their investment through equity contributions rather than through debt financing (the draft Directive or DEBRA). This initiative was announced by the Commission in its Comm…