Sittings · Document
SPECIAL LEGISLATIVE procedure
Follow up to the European Parliament legislative resolution 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
1. Rapporteur: Luděk NIEDERMAYER (EPP / CZ)
2. Reference numbers: 2022/0154 (CNS) / A9-0387/2023 / P9_TA(2023)0006
3. Date of adoption of the resolution: 14 December 2023
4. Legal basis: Article 115 of the Treaty on the Functioning of the European Union
5. Competent Parliamentary Committee: Committee on Economic and Monetary Affairs (ECON)
6. Commission's position: accepts some amendments.
Part I: Accepted amendments
Amendments 1, 2, 3, 4, 8, 18, 24, 25, of the resolution are mere clarifications of the objective of the proposal.
Commission position: accept the amendments.
These amendments are in line with the Commission’s objectives and strengthen the proposal.
Amendments 15 and 17 on reducing the period on which the notional interest exceeding the EBITDA can be carried forward; 26 on the Commission reporting; 27 on reducing the grandfathering of existing domestic notional interest deduction schemes from 10 to 5 years.
Commission position: accept the amendments.
These amendments do not change the Commission proposal significantly and represent a sensible approach and can thus be accepted.
Part II: Amendments accepted in spirit
Amendments 5, 6, 9, 11, 12, 13, 14, 16, 19, 20, 22 on making the length and level of the deductibility of the allowance on equity and the application of the interest limitation rule conditional upon the size of the taxpayer.
Commission position: accept the spirit of the amendments but reject the amendments as such.
The Commission agrees that the EU should aim to diversify funding sources for EU companies, especially for small and medium sized enterprises (SMEs). Therefore, it should avoid creating new costs and barriers in respect of access to financing for these companies, especially considering that they cannot easily access capital markets.
During discussions in Council on the this proposal, Member States debated about the possibility to introduce a safe harbour for a level of debt equal to the average indebtedness of SMEs/ a medium-sized group. The big advantage of this solution is its progressivity: when a company crosses the safe harbour limit, only the part of its debt that is above the limit becomes non-deductible – there is therefore no disincentive for growth.
Concerning the limitation of the allowance on equity to 7 years for taxpayers other than an SMEs or a medium-sized group, it should be noted that the length of the measure must strike a balance between fiscal cost and the elimination of the debt-equity bias. The shorter the period for the allowance deductibility, the larger the remaining debt equity bias. Creating a differential on this point based on the company size would hence not be pertinent in an initiative that aims at addressing the debt bias.
Amendments 7 and 21
Commission position: reject the amendments
The Conduct of Conduct Group is an intergovernmental body; the guidance issued by the Group is not EU legislation.
Amendment 10
Commission position: accept the spirit of the amendment but reject one part of the amendment.
The last part of the amendment cannot be accepted: “In the case of a negative evaluation in that report, the Commission should, without undue delay, submit to the European Parliament and to the Council a legislative proposal addressing that issue”.
The Commission holds the exclusive prerogative to put forward initiatives for new legislation, and therefore there can be no obligation on the Commission to submit a new proposal in order to address the issue to which the European Parliament amendment refers.
Amendment 23 applies the interest limitation rule to exceeding borrowing costs incurred as of 1 January 2027.
Commission position: accept the spirit of the amendments but reject the amendments as such.
The interest limitation rule was introduced to balance the fiscal cost of the proposal. If it is only applied as of 1 January 2027, while the allowance on equity is applied from the outset, the fiscal cost in the first years of application of the directive might be unbalanced. Nonetheless, this solution could be further explored in the frame of the Council negotiations.
Amendment 28 requests each Member State to assess the estimated fiscal costs of the measures to be adopted and the resulting decrease in the effective tax rate for companies, as well as take proper measures to protect tax revenues, before it transposes this directive into national law.
Commission position: accept the spirit of the amendments but reject the amendments as such.
This proposal was subject to a thorough publicly available impact assessment. Member States are free to make further assessments of the estimated fiscal costs of the measures for adoption and of the resulting decrease in the effective tax rate for companies before transposing this directive into national law. Nonetheless, a proper obligation on Member States to take unspecified measures to protect tax revenues may limit the harmonisation nature of the proposal, introduce an unlevel playing field among Member States and in some cases may even go contrary to the objective of the proposal.