Economy, Europe

EU proposes tax incentive for equity to help firms grow

Excessive debt levels make companies vulnerable to unforeseen changes, says European Commission

Ovunc Kutlu   | 11.05.2022
EU proposes tax incentive for equity to help firms grow

ANKARA

The European Commission announced on Wednesday that it had proposed a tax incentive for equity to help companies grow and become more resilient.

The measure, which is called a debt-equity bias reduction allowance, or DEBRA, aims to help businesses access the financing they need by introducing an allowance that grants equity the same tax treatment as debt.

In addition, increases in a taxpayer's equity from one tax year to the next will be deductible from its taxable base, if the measure is adopted.

In a statement, the commission stressed that excessive debt levels make companies vulnerable to unforeseen changes, adding that therefore, "reducing the over-reliance on debt-financing, and supporting a possible rebalancing of companies' capital structure, can positively affect competitiveness and growth."

It noted that total indebtedness of non-financial corporations in the EU amounted to almost €14.9 trillion ($15.7 trillion) in 2020, or 111% of the union's total GDP.

"This harmonised solution to the debt-equity bias will make Europe's business environment more predictable and competitive, spurring the development of our capital markets union," the statement quoted Commissioner for Economy Paolo Gentiloni as saying.

"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," he added.

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