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EU watch: hello DEBRA

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There is much anticipation in the air in Brussels. This is not just because of the gradual lifting of the covid restrictions, but also in expectation of the European Commission’s major tax proposals, such as the digital levy, revision of the energy taxation Directive and minimum taxation, which are now due to be released soon. In the meantime, ongoing tax policy dynamics ensure that things are not too boring while we wait.

On 29 April, the Commission announced that it is planning a new Directive: an allowance for equity-financed new investment. A public consultation is expected within the next couple of months, and a legislative proposal in the fourth quarter of 2021. And there is already an acronym: debt-equity bias reduction allowance (DEBRA). The aim is to address the debt-equity bias that exists in the tax rules of several EU member states by encouraging companies to finance more investment through equity contributions, rather than via debt. The Commission fears that over-indebtedness could threaten the stability of the EU’s financial system and increase the risk of bankruptcies. No doubt, the Commission also seeks to further its capital markets union objectives, which aims to scale up and integrate pan-European capital markets.

By way of background, observers may recall that, back in 2016, the Commission proposed an allowance for corporate equity (ACE) as part of its common consolidated corporate tax base (CCCTB) proposals. Little to no progress has been made on the CCCTB, so it seems the Commission has separated the equity allowance element from that file so that it is not dependent on the implementation of the CCCTB as a whole.

The Commission has also decided to postpone its communication on business taxation for the 21st century to 18 May. This communication was supposed to be published last autumn, but it has been postponed at worrisome regularity. This legally non-binding communication is raising a lot of interest in Brussels, as it is expected to announce the Commission’s key tax proposals for the remainder of its mandate in 2024, and it is expected to include unspecified additional measures on greater tax transparency.

And finally, speaking of tax transparency, the European Parliament and the Council have now held two rounds of negotiations on public country by country reporting (CBCR). It appears that there has been only meagre progress on all key angles of the file: on the (dis-)aggregation of the data, the so-called safeguard clause that would allow businesses to omit disclosure if strategic business interests would be at risk, and the contents of the disclosed information.

Ahead of a 23 April meeting between the negotiators, a negotiation document was leaked to the media. The document was apparently written by a lobbyist from the French business association. It urges the Council’s negotiating team to stand firm on all of the Council’s red lines. It was in this atmosphere of controversy and tension that the negotiations took place, with an additional round expected for late-May or June, and there are now doubts over whether a deal is reachable in the foreseeable future. (See the last EU watch article for further details on the negotiations and main points of contention.)

The European Parliament now needs to reflect on its negotiation strategy. Reportedly, some (but not necessarily  all) of its negotiating team are ready to compromise on the disaggregation of data in exchange for a softer safeguard clause and faster review clause. It remains to be seen whether the Council will be open to such compromises (and it seems France might not be).

The Parliament’s negotiators are apparently also wondering whether they need to rush a deal through by June, or rather postpone a possible compromise until either later in 2021 or 2022 when the political dynamics might be very different.

Issue: 1530
Categories: In brief , CBCR , DEBRA , EU watch