The Commission proposed tax incentives for share capital

The European Commission today proposed fiscal incentives for equity capital to support more resilient business growth.

In particular, the Commission has announced that it is proposing a tax deduction to reduce the distortion caused by debt-to-equity debt management (DEBRA), in order to help businesses access the funding they need and become more resilient. This measure will support companies by introducing a tax deduction that will provide the share capital with the same tax treatment as the debt. The proposal stipulates that the increase in the share capital of a taxable company from one tax year to another will be deducted from its taxable base, as in the case of debt.

This initiative is part of the EU’s corporate tax strategy, which aims to ensure a fair and efficient tax system throughout the EU and contributes to the Hellenic Capital Markets Union, making financing more accessible to EU companies and promoting the completion of national capital markets in a real single market.

According to the Commission, the distortion in favor of debt relief that still exists in tax rules, according to which companies can deduct interest related to debt financing – but not the costs associated with financing through debt equity – can encourage businesses to take on debt rather than increase equity to finance their growth. Excessive debt levels make businesses vulnerable to unpredictable changes in the business environment. The total debt of non-financial corporations in the EU amounted to around € 14.9 trillion in 2020 or 111% of GDP. The Commission points out that companies with a strong capital structure may be less vulnerable to shocks and more likely to invest and innovate. Therefore, reducing over-reliance on debt financing and supporting a possible rebalancing of the business capital structure can have a positive impact on competitiveness and growth. According to the Commission, the combined approach of the share capital tax deduction and the reduction of the interest deduction is expected to increase investment by 0.26% of GDP.

Economy Commissioner Paolo Gentiloni said: “We want to give a boost to innovative start-ups and SMEs across the EU. This harmonized solution to the debt-to-equity treatment Europe will be more predictable and competitive, and will promote the development of our capital markets.Our proposal will help businesses raise more stable capital; they will become less vulnerable and more likely to invest and take risks. news for employment and growth in Europe “.

According to the Commission, the tax rebate on equity financing can facilitate bold investments in cutting-edge technologies, especially for start-ups and SMEs. Equity is extremely important for fast-growing, innovative start-ups and expanding companies that want to be globally competitive.

SOURCE: AMPE