On July 28, TEI submitted comments to the European Commission (EC) regarding the EC’s proposal to set forth rules on a debt-equity bias reduction allowance (DEBRA) and on limiting the deductibility of interest for corporate income tax purposes. The EC proposed to accomplish this objective by providing for “the deductibility for tax purposes of notional interest on increases in equity and to limit the tax deductibility of exceeding borrowing costs.”
In response to this proposal, TEI submitted comments to the EC highlighting several areas of concern and making several recommendations. Of primary concern to the Institute was the proliferation of anti-avoidance rules applicable to businesses operating in the European Union (EU). In particular, the EC’s first anti-tax avoidance directive included a limitation on interest deductibility, so it is unclear why another limitation is necessary.
Regarding DEBRA itself, TEI pointed out several areas that need clarification, including how DEBRA would apply to payments between related parties and payments within a consolidated tax group. The Institute also recommended, for simplicity, that DEBRA adopt definitions from other areas of EU tax law, so common terms have the same meaning.
TEI’s comments were developed by a working group led by Ralf Thelosen of Citco, under the aegis of TEI’s European Direct Tax Committee. Ben Shreck, TEI tax counsel, supported this initiative from the TEI staff.