EU: Proposed debt-equity bias reduction allowance

Support businesses by introducing an allowance that will grant to equity the same tax treatment as debt

Allowance that will grant to equity the same tax treatment as debt

The European Commission (EC) today proposed a debt-equity bias reduction allowance to help businesses access financing and to become more resilient.

According to the EC release, this measure will support businesses by introducing an allowance that will grant to equity the same tax treatment as debt. The proposal stipulates that increases in a taxpayer's equity from one tax year to the next will be deductible from its taxable base, similar to what happens to debt.

Also according to the EC, the current pro-debt bias of tax rules, when businesses can deduct interest attached to a debt financing—but not the costs related to equity financing—can incentivise companies to take on debt rather than increase equity to finance their growth. Excessive debt levels make companies vulnerable to unforeseen changes in the business environment. Reducing the over-reliance on debt-financing, and supporting a possible rebalancing of companies' capital structure, can positively affect competitiveness and growth.


The debt-equity bias reduction allowance is a follow-up to the Communication on Business Taxation for the 21st century [PDF 620 KB] that sets out a long-term vision to provide a fair and sustainable business environment and EU tax system, as well as targeted measures to promote productive investment and entrepreneurship and ensure effective taxation. Read TaxNewsFlash

The proposal also contributes to the EU's Capital Markets Union Action Plan that aims at helping companies raise capital, particularly as they navigate the post-pandemic period. The Capital Markets Union Action Plan incentivises long-term investments to foster the sustainable and digital transition of the EU economy. 

Read a May 2022 report prepared by KPMG’s EU Tax Centre


The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.