[ParlTrack]

Proposal for a directive
Title 1

Proposal for a COUNCIL DIRECTIVE on ~~laying down rules on a debt-equity bias reduction allowance and on~~ limiting the deductibility of interest for corporate income tax purposes

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Recital 2

(2) Member States’ tax systems allow too leniently the taxpayers to deduct interest payments on debt financing, and thereby reduce the corporate income tax liability, while costs related to equity financing are non-tax deductible in most Member States. The asymmetric tax treatment of debt and equity financing across the Union induces a bias towards debt in investment decisions. Moreover, where Member States provide for a tax allowance on equity financing in their domestic law, such national measures differ significantly in terms of policy design. The asymmetric tax treatment of debt and equity financing across the Union exacerbated by too permissive interest limitation rules induce a bias towards debt in investment decisions.

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Recital 3

(3) In order to remove possible tax related distortions among Member States, it is necessary to lay down a common framework of rules to address the tax related debt-equity bias across the Union in a coordinated manner. Such rules should ensure that ~~equity and~~ debt financing ~~are treated in a similar way for tax purposes across the single market. At the same time, a common Union legislative framework should be sustainable also~~ is disincentivized from a tax perspective bringing the ~~short term for Member States’ budgets. Such framework should therefore include rules, on the one hand, for the tax deductibility of~~treatment between debt and equity financing clos~~ts and, on the~~er to each other, for ~~limiting the tax deductibility of debt financing costs~~tax purposes across the single market.

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Recital 4

(4) To ensure a simple and comprehensive legislative framework, the common framework of rules should apply to all undertakings in the Union that are subject to corporate income tax in a Member State. Financial undertakings have special features and require a specific treatment. If the rules to address the tax related debt-equity bias were to apply to them, the economic burden of the measures would be unequally distributed at the expense of non-financial undertakings. Financial undertakings should therefore be excluded from the scope of this Directive.

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Recital 5

(5) To neutralise the bias against equity financing, an allowance should be envisaged so that increases in a taxpayer's equity from one tax period to the next are deductible from its taxable base, subject to certain conditions. The allowance should be calculated by multiplying the increase in equity with a notional interest rate based on risk-free interest rate as laid down in the implementing acts adopted pursuant to Article 77e(2) of Directive 2009/138/EC. Such risk-free interest rates are already part of EU law and have been practically and effectively applied as such. Any part of the allowance that cannot be deducted in a tax period due to insufficient taxable profits may be carried forward. Taking into account the specific challenges that small- and medium-sized enterprises (SMEs) face in accessing capital markets, an increased allowance on equity should be envisaged for taxpayers that are SMEs. In order for the deduction of an allowance on equity to be sustainable for public finances in the short term, it should be limited in time. To safeguard the system from abuses, it is necessary to exclude the tax value of a taxpayer's own shares as well as that of its participation in associated enterprises from the calculation of changes in equity. In the same vein, it is necessary to provide for the taxation of a decrease in a taxpayer’s equity from one tax period to the following one, to prevent an equity increase from being effected in an abusive manner. Such a rule would also encourage the retention of a level of equity. It would apply so that where there is a decrease in equity of a taxpayer that has benefitted from an allowance on equity increase, an amount calculated in the same way as the allowance would become taxable for 10 tax periods; unless the taxpayer provides evidence that this decrease is exclusively due to losses incurred during the tax period or due to a legal obligation.deleted

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Recital 6

(6) In order to avoid a misuse of the deduction of the allowance on equity, it is necessary to lay down specific anti-tax avoidance rules. Such rules should target, in particular, schemes put in place to circumvent the conditions on which an equity increase qualifies for an allowance under this Directive, for instance, through the intra-group transfer of participations in associated enterprises. Such rules should also target schemes put in place to claim an allowance in the absence of any equity increase at group level. For example, intra-group debt financing or contributions in cash could be used for these purposes. Specific anti-tax avoidance rules should also prevent schemes from being put in place to claim that an increase in equity, and the corresponding allowance, is higher than it actually is, for example, through an increase in loan financing receivables or overvaluation of assets. Moreover, the general anti-tax abuse rule in Article 6 of Council Directive (EU) 2016/116415 applies against abusive acts which are not covered by the specific anti-tax avoidance framework of this Directive. _________________ 15 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market (OJ L 193, 19.7.2016, p. 1).deleted

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Recital 7

(7) To effectively address the tax- related debt-equity bias in a manner beneficial, and not further harming the sustainableility for the Union’s public finances, ~~an allowance for equity financing should be accompanied by~~ a limitation on the deductibility of debt financing costs should be introduced. An interest limitation rule should therefore limit the deductibility of exceeding borrowing costs and apply independently from the allowance. Given the different objectives between such a rule and the existing anti-tax avoidance rule on interest limitation of Article 4 of Directive (EU) 2016/1164, both rules should be maintained. Taxpayers should first calculate the deductibility of exceeding borrowing costs under this Directive and then under ATAD. In the event that the latter results in a lower amount of deductible exceeding borrowing costs, the taxpayer should deduct this lower amount and carry forward or back any difference between the two amounts in accordance with Article 4 of ATAD.

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Recital 10

(10) In order to enable the smooth and prompt amendment of certain non- essential elements of this Directive taking into account ongoing developments, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission, so that the latter can amend this Directive, to modify the level of the risk premium rate as an element for the calculation of the allowance on equity. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making16 . In particular, to ensure equal participation in the preparation of delegated acts, the Council should receive all documents at the same time as Member States' experts, and its experts should systematically be given access to meetings of Commission expert groups dealing with the preparation of delegated acts. _________________ 16 OJ L 123, 12.5.2016, p. 1.deleted

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Article 1 – paragraph 1

This Directive lays down rules on the ~~deduction, for corporate income tax purposes, of an allowance on increases in equity and on the~~ limitation of the tax deductibility of exceeding borrowing costs.

2023/01/19
Committee: ECON

Claude GRUFFAT

~~[...]~~deleted

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Article 3

~~[...]~~deleted

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Chapter II – title

II ~~ALLOWANCE ON EQUITY AND~~ INTEREST DEDUCTIONS

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Article 4

~~[...]~~deleted

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Article 5

1. Member States shall take appropriate measures to ensure that the base of the allowance on equity does not include the amount of any increase which is the result of: (a) granting loans between associated enterprises; (b) a transfer between associated enterprises of participations or of a business activity as a going concern; (c) a contribution in cash from a person resident for tax purposes in a jurisdiction that does not exchange information with the Member State in which the taxpayer seeks to deduct the allowance on equity. This paragraph shall not apply if the taxpayer provides sufficient evidence that the relevant transaction has been carried out for valid commercial reasons and does not lead to a double deduction of the defined allowance on equity. 2. Where an increase in equity is the result of a contribution in kind or investment in an asset, Member States shall take the appropriate measures to ensure that the value of the asset is taken into account for the calculation of the base of the allowance only where the asset is necessary for the performance of the taxpayer’s income-generating activity. If the asset consists of shares, it shall be taken into account at its book value. If the asset is other than shares, it shall be taken into account at its market value, unless a different value has been given by a certified external auditor. 3. Where an increase in equity is the result of a reorganisation of a group, such increase shall only be taken into account for the calculation of the base of the allowance on equity for the taxpayer in accordance with Article 4 to the extent that it does not result in converting into new equity the equity (or part thereof) that already existed in the group before the re- organisation.Article 5 deleted Anti-Abuse Rules

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Article 7 – paragraph 1 – point a

~~(a) the number of taxpayers that have benefited from the allowance on equity in the tax period, also as a percentage of the total number of taxpayers falling within the scope of this Directive;~~deleted

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Article 7 – paragraph 1 – point b

(b) the number of SMEs that have benefitted from the allowance in the tax period, including as a percentage of the total number of SMEs falling within the scope of this Directive and the number of SMEs that have benefitted from the allowance, which are part of large groups within the meaning of Article 3(7) of Directive 2013/34/EU;deleted

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Article 7 – paragraph 1 – point c

(c) the total amount of expenditure incurred or tax revenue lost due to the deduction of allowance on equity allocated to the allowance on equity as compared to the national gross domestic product of the Member State;deleted

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Article 7 – paragraph 1 – point f

~~(f) the number of taxpayers to which anti-abuse measures have been applied in the tax period pursuant to this Directive including the related tax consequences and sanctions applied;~~deleted

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Article 9

1. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. 2. The power to adopt delegated acts referred to in Article 4(5) shall be conferred on the Commission for an indeterminate period of time from [OP insert the date of entry into force of this Directive]. 3. The delegation of power referred to in Article 4(5) may be revoked at any time by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force. 4. Before adopting a delegated act, the Commission shall consult experts designated by each Member State in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making. 5. As soon as it adopts a delegated act, the Commission shall notify it to the Council. 6. A delegated act adopted pursuant to Article 4(5) shall enter into force only if no objection has been expressed by the Council within a period of 2 months of notification of that act to the Council or if, before the expiry of that period, the Council has informed the Commission that it will not object. That period shall be extended by 2 months at the initiative of the Council.Article 9 deleted Exercise of Delegation

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Article 10

~~Informing the European Parliament The European Parliament shall be informed of the adoption of~~Article 10 delegated ~~acts by the Commission, of any objection to them, and of the revocation of a delegation of powers by the Council.~~

2023/01/19
Committee: ECON

Claude GRUFFAT

Proposal for a directive
Article 11 – paragraph 2

2. Member States may defer the application of the provisions of this Directive to taxpayers that on [1 January 2024] benefit from an allowance on equity under national law for a period up to 10 years and in no case for a period longer than the duration of the benefit under national law.deleted

2023/01/19
Committee: ECON

Activities of Claude GRUFFAT related to 2022/0154(CNS)

Shadow reports (1)

Amendments (21)

ParlTrack - 2011-2024