The EU Commission intends to address the tax bias that favors debt over equity as a part of its proposal for an EU-wide common consolidated corporate tax base, to be presented next year, the Commission announced September 30 in its Capital Markets Union Action Plan.
The preferential tax treatment of debt from deductibilty of interest payments causes equity to be less desirable, impeding efficient capital market financing, the Commission said in its action plan, which seeks to provide EU businesses with more diverse sources of capital.
“Addressing this tax bias would encourage more equity investments and create a stronger equity base in companies. Also, there are obvious benefits in terms of financial stability, as companies with a stronger capital base would be less vulnerable to shocks. This is particularly true for banks,” the Commission said.
The decision is consistent with conclusions reached in a paper released September 28, The Tax Reforms Report 2015, prepared by the Commission’s Directorate General for Economic and Financial Affairs and the Directorate General for Taxation and Customs.
The paper recommended that EU nations take steps to eliminate the debt/equity bias by adopting a combination of measures that limit the deductibilty of interest costs and that extend deductibility to include a return on equity.
The Commission also announced in its action plan that it intends to study and promote best practices on the use of tax incentives for venture capital and business angels to encourage more funding choices for business, including small and medium-sized entities.
Further, the Commission said it intends to study whether Member State tax systems create barriers that limit cross border distribution of investment funds. The Commission will attempt to limit any tax barriers and other barriers through legislation.
See:
Related MNE Tax articles:
Be the first to comment