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DRAFT REPORT (COM(2022)0216 – C90197/2022 – 2022/0154(CNS))

On the proposal for a Council directive on laying down rules on a debt-equity bias reduction allowance and on limiting the deductibility of interest for corporate income tax purposes

ECON-PR-738463

Committee on Economic and Monetary Affairs · Rapporteur: Luděk Niedermayer

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The rapporteur's draft report approves the Commission proposal for a Council directive on a debt-equity bias reduction allowance and on limiting interest deductibility, as amended. It calls on the Commission to alter its proposal accordingly and on the Council to notify Parliament before departing from the approved text or to consult Parliament again on substantial amendments. The amendments give SMEs a 15-year equity allowance, a 2% risk premium, a 10-year carry-forward and a longer clawback period, and delay the interest limitation to 1 January 2027 with a EUR 500 000 threshold. The Commission would report by 31 December 2028 on the directive's implementation and impact, with special attention to SMEs and to the interest limitation's effect on Member States' fiscal revenues.

Committee position. The rapporteur approves the Commission proposal as amended, making minor changes to assist SMEs through a longer and higher equity allowance and a gradual interest limitation, and believes the proposal should be fine-tuned and gradually implemented rather than rejected.

Key points

  1. Parliament approves the Commission proposal as amended and asks the Commission to change its proposal accordingly.
  2. The Council must notify Parliament if it intends to depart from the approved text, and consult Parliament again on substantial amendments.
  3. Recital 1 is amended to refer to the three successive economic crises since 2008 and to simpler tax measures that incentivise investment and growth.
  4. Recital 2 is amended to state that the directive answers Parliament's calls to address the tax-related debt-equity bias.
  5. The right to deduct an equity allowance becomes irrevocable once the criteria are met and is not affected by a change in the undertaking's size.
  6. The possible fiscal costs of the directive should be assessed together with the benefits of a more robust financing base for Union firms.
  7. The interest limitation rule would be introduced only as of 2027 and would not apply to small loans; both it and the anti-tax avoidance interest rule would be maintained.
  8. The Commission's evaluation report should pay special attention to SMEs and, if negative, be followed without delay by a legislative proposal.
  9. The equity allowance is deductible for 15 consecutive tax periods for SMEs and 10 for other taxpayers, up to 30% of EBITDA.
  10. Carry-forward of the allowance above 30% of EBITDA is extended to a maximum of 10 tax periods for SMEs and 5 for other taxpayers.
  11. The allowance uses a 10-year risk-free interest rate plus a 1% risk premium, or 2% for SMEs; negative allowance amounts become taxable over 15 periods for SMEs or 10 for others.
  12. The interest deduction limitation applies only to exceeding borrowing costs above EUR 500 000, from 1 January 2027, and the Commission reports by 31 December 2028.

Who is affected

  • SMEs: get a longer equity allowance period, a higher risk premium, a longer carry-forward and a longer clawback period.
  • Other corporate taxpayers: get a 10-period equity allowance, a 1% risk premium and a 5-period carry-forward.
  • Member States: must apply the interest deduction limitation from 1 January 2027 and report information for the Commission's evaluation.
  • The Commission: must alter its proposal, report by 31 December 2028 and possibly propose legislation if the evaluation is negative.
  • The Council: must notify Parliament before departing from the approved text and consult Parliament again on substantial amendments.

Figures and deadlines

  • 30% of EBITDA: cap on the annual equity allowance deduction.
  • 15 consecutive tax periods: equity allowance period for SMEs.
  • 10 consecutive tax periods: equity allowance period for other taxpayers.
  • 5 tax periods: maximum carry-forward for taxpayers other than SMEs.
  • 10 tax periods: maximum carry-forward for SMEs.
  • 1%: risk premium for taxpayers other than SMEs.
  • 2%: risk premium for SMEs.
  • EUR 500 000: threshold above which the interest deduction limitation applies.

Legal basis: Article 115 of the Treaty on the Functioning of the European Union.