In May 2022, the European Commission presented a proposal for a harmonized EU wide debt-equity bias reduction allowance (the DEBRA proposal). To eradicate the preferential treatment of debt, the DEBRA proposal lays down rules for an EU-wide allowance for corporate equity (ACE) combined with a new limitation of the deductibility of interest payments.
This briefings shows that the DEBRA proposal in its current form is bad policy and should not be adopted. Suggestions are made for a revised DEBRA directive which is more fit to purpose, less prone to abuse and tax revenue drainage, and therefore altogether more in line with the EU’s pending BEFIT initiative.