We submitted our feedback on the European Commission’s proposed DEBRA directive. By way of reminder, this is the Commission’s solution to address a perceived “debt-equity bias” that allegedly results in too much capital invested in EU businesses taking the form of debt rather than equity. We don’t agree.

We think it defies commercial reality to argue that if only profit distributions were tax deductible and/or interest payments weren’t, businesses would raise equity rather than borrow. We are especially troubled by the fact that the proposal doesn’t seem to understand that excessive leverage across EU businesses is largely involuntary (the effect of worsening economic conditions). In our view, a proposal to restrict the tax relief available for interest payments by 15% as soon as January 2024 is more likely to add stress to businesses that cannot access alternative, cheaper capital, than to strengthen financial stability. It’s almost enough to prompt talk of Brexit benefits…

Our response can be seen here, as well as on the Commission’s DEBRA page, where you can also find the text of the proposed directive and associated materials.

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