EFAMA supports the Commission’s efforts to encourage more companies to finance their investment through equity contributions rather than debt financing.
The Commission decided to follow a policy option that will enable the deductibility of an allowance on equity financing costs complemented by a rule to limit the deductibility of interest on debt financing instruments.
As a principle, the negative impact, and consequences that a blanket restriction on debt deduction would have on end-investors (which was our main concern considering the policy options being considered), seem to have been avoided and this is to be welcomed.
We do suggest that the right balance is struck between the tax allowances on equity vs. limiting interest deductions. Indeed, there are already interest deduction limitation rules in place across EU countries following the implementation of the EU ATAD. Such interest limitation rules were inspired by the OECD BEPS project that ensured level playing field among OECD member states.
The new interest deduction limitation rule may go beyond ensuring the minimum necessary level of protection for the EU internal market and may play a part in losing competitiveness for the EU (considering that other (non-EU) OECD countries would not be affected by similar interest limitation rules).