Legal provisions of COM(2022)216 - Laying down rules on a debt-equity bias reduction allowance and on limiting the deductibility of interest for corporate income tax purposes

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dossier COM(2022)216 - Laying down rules on a debt-equity bias reduction allowance and on limiting the deductibility of interest for corporate ...
document COM(2022)216 EN
date May 11, 2022


CHAPTER I
GENERAL PROVISIONS

Contents

Article 1 -   Subject matter

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.

Article 2 -   Scope

This Directive applies to taxpayers that are subject to corporate income tax in one or more Member States, including permanent establishments in one or more Member State of entities resident for tax purposes in a third country.

However, this Directive does not apply to the following financial undertakings:

(a) ‘credit institution’ as defined in Article 4(1), point (1), of Regulation (EU) No 575/2013 the European Parliament and of the Council 17 ;

(b)‘investment firm’ as defined in Article 4(1), point (1), of Directive 2014/65/EU the European Parliament and of the Council 18 ;

(c)‘alternative investment fund manager’ as defined in Article 4(1), point (b), of Directive 2011/61/EU of the European Parliament and of the Council 19 , including a manager of European venture capital funds under Regulation (EU) No 345/2013 of the European Parliament and of the Council 20 , a manager of European social entrepreneurship funds under Regulation (EU) No 346/2013 of the European Parliament and of the Council 21 and a manager of European long-term investment funds under Regulation (EU) 2015/760 of the European Parliament and of the Council 22 ;

(d)‘undertaking for collective investment in transferable securities’ management company’ as defined Article 2(1), point (b), of Directive 2009/65/EC of the European Parliament and of the Council 23 ;

(e)‘insurance undertaking’ as defined in Article 13, point (1), of Directive 2009/138/EC of the European Parliament and of the Council 24 ;

(f)‘reinsurance undertaking’ as defined in Article 13, point (4), of Directive 2009/138/EC;

(g)‘institution for occupational retirement provision’ as defined in Article 6, point (1), of Directive (EU) 2016/2341 of the European Parliament and of the Council 25 ;

(h)pension institutions operating pension schemes which are covered by Regulation (EC) No 883/2004 of the European Parliament and of the Council 26 as well as any legal entity set up for the purpose of investment in such schemes;

(i)‘alternative investment fund’ as defined in Article 4(1), point (a), of Directive 2011/61/EU, managed by an alternative investment fund manager, as defined in Article 4(1), point (b), of Directive 2011/61/EU or an alternative investment fund as defined in Article 4(1), point (a), of Directive 2011/61/EU supervised under the applicable national law;

(j)undertakings for collective investment in transferable securities within the meaning of Article 1(2) of Directive 2009/65/EC;

(k)‘central counterparty’ as defined in Article 2, point (1), of Regulation (EU) No 648/2012 of the European Parliament and of the Council 27 ;

(l)‘central securities depository’ as defined in Article 2(1), point (1), of Regulation (EU) No 909/2014 of the European Parliament and of the Council 28 ;

(m)a special purpose vehicle authorised in accordance with Article 211 of Directive 2009/138/EC;

(n)‘securitisation special purpose entity’ as defined in Article 2, point (2), of Regulation (EU) No 2017/2402 of the European Parliament and of the Council 29 ;

(o)‘insurance holding company’ as defined in Article 212(1), point (f), of Directive 2009/138/EC or ‘mixed financial holding company’ as defined in Article 212(1), point (h), of Directive 2009/138/EC, which is part of an insurance group that is subject to supervision at the level of the group pursuant to Article 213 of that Directive and which is not excluded from group supervision pursuant to Article 214(2) of Directive 2009/138/EC;

(p)‘payment institution’ as defined in Article 4, point (4), of Directive (EU) 2015/2366 of the European Parliament and of the Council 30 ;

(q)‘electronic money institution’ as defined in Article 2, point (1), of Directive 2009/110/EC of the European Parliament and of the Council 31 ;

(r)‘crowdfunding service provider’ as defined in Article 2(1), point (e), of Regulation (EU) 2020/1503 of the European Parliament and of the Council 32 ;

(s)‘crypto-asset service provider’ as defined in Article 3(1), point (8), of Regulation …/… of the European Parliament and of the Council 33  

Article 3 - Definitions

For the purposes of this Directive, the following definitions shall apply:

(1) ‘associated enterprise’ means a person who is related to another person in any of the following ways:

(a)the person participates in the management of the other person by being in a position to exercise a significant influence over the other person;

(b)the person participates in the control of the other person through a holding that exceeds 25 % of the voting rights;

(c)the person participates in the capital of the other person through a right of ownership that, directly or indirectly, exceeds 25 % of the subscribed capital;

(d)the person is entitled to 25 % or more of the profits of the other person.

If more than one person participates in the management, control, capital or profits of the same person, as referred to in paragraph 1, all persons concerned shall be regarded as associated enterprises.

If the same persons participate in the management, control, capital or profits of more than one person, as referred to in paragraph 1 all persons concerned shall be regarded as associated enterprises.

For the purposes of this definition , ‘person’ means both legal and natural persons. A person who acts together with another person in respect of the voting rights or capital ownership of an entity shall be treated as holding a participation in all of the voting rights or capital ownership of that entity that are held by the other person.

In indirect participations, the fulfilment of the criteria set out in point (c) of paragraph 1 shall be determined by multiplying the rates of holding through the successive tiers. A person holding more than 50 % of the voting rights shall be deemed to hold 100 %.

The spouse, and lineal descendants of an individual, together with the individual, shall be treated as a single person.

An associated enterprise in accordance with this paragraph shall also include any operation as a result of which a person becomes an associated enterprise;

(2) tax period means a calendar year or any other appropriate period for tax purposes;

(3) ‘group’ means a group as defined in Article 2, point (11), Directive 2013/34/EU of the European Parliament and of the Council 34 .

(4) ‘participation’ means participating interest as defined in Article 2, point (2), of Directive 2013/34/EU;

(5) ‘SME’ means all undertakings which do not exceed the threshold for medium-sized undertakings, as laid down in Article 3(3) of Directive 2013/34/EU;

(6) ‘equity’ means, in a given tax period, the sum of the taxpayer’s paid-up capital, share premium accounts, revaluation reserve and other reserves and profit or loss brought forward;

(7) ‘net equity’ means the difference between the equity of a taxpayer and the sum of the tax value of the taxpayer’s participation in the capital of associated enterprises and the taxpayer’s own shares;

(8) ‘reserves’ means any of the following:

(1) legal reserve, in so far as national law requires such a reserve;

(2) reserve for own shares, in so far as national law requires such a reserve, without prejudice to Article 24(1), point (b), of Directive 2012/30/EU;

(3) reserves provided for by the articles of association;

(4) other reserves, including the fair value reserve.

CHAPTER II
ALLOWANCE ON EQUITY AND INTEREST DEDUCTIONS

Article 4 - Allowance on Equity

1. An allowance on equity shall be deductible, for 10 consecutive tax periods, from the taxable base of a taxpayer for corporate income tax purposes up to 30% of the taxpayer's earnings before interest, tax, depreciation and amortisation (“EBITDA ”).

If the deductible allowance on equity, in accordance with the first subparagraph, is higher than the taxpayer’s net taxable income in a tax period, Member States shall ensure that the taxpayer may carry forward, without time limitation, the excess of allowance on equity to the following periods.

Member States shall ensure that the taxpayers may carry forward, for a maximum of 5 tax periods, the part of the allowance on equity which exceeds 30% of EBITDA in a tax period.

2. Subject to Article 5, the base of the allowance on equity shall be calculated as the difference between the level of net equity at the end of the tax period and the level of net equity at the end of the previous tax period.

The allowance on equity shall be equal to the base of the allowance multiplied by the 10-year risk-free interest rate for the relevant currency and increased by a risk premium of 1% or, where the taxpayer is an SME, a risk premium of 1.5%.

For the purposes of the second subparagraph of this paragraph, the 10-year risk-free interest rate for the relevant currency shall be the risk-free interest rate with a maturity of 10 years for the relevant currency, as laid down in the implementing acts adopted pursuant to Article 77e(2) of Directive 2009/138/EC for the reference date of 31 December of the year preceding the relevant tax period.

3. If, after having obtained an allowance on equity, the base of the allowance on equity is negative in a tax period, an amount equal to the negative allowance on equity shall become taxable for 10 consecutive tax periods, up to the overall increase of net equity for which such allowance has been obtained under this Directive, unless the taxpayer provides sufficient evidence that this is due to accounting losses incurred during the tax period or due to a legal obligation to reduce capital.

4. The Commission shall be empowered to adopt delegated acts in accordance with Article 9 amending paragraph 2 of this Article by modifying the rate of the risk premium, where any of the following two conditions is met:

(a)the 10-year risk-free interest rate as referred to in paragraph 2 of this Article varies by more than two percentage points with regard to at least three Union currencies compared to the tax period in which the most recent delegated act modifying the risk premium, or, where there is no such delegated act, this Directive started to apply; or

(b)zero or negative growth of the gross domestic product of the EU area in at least two successive quarters;

and

(c) the relevant data, reports and statistics, including those provided by Member States, conclude that the EU average of the financing conditions of debt for taxpayers in scope of this directive has more than doubled or halved since the last determination of the risk premium established in paragraph 2.

The percentage of increase or decrease of the risk premium shall take into account the changes in the financing conditions mentioned under point (c) of the first subparagraph other than changes in the risk-free interest rate for the EU as laid down in the implementing acts adopted pursuant to Article 77e(2) of Directive 2009/138/EC, and in any case shall not begreater than the percentage of increase or decrease of the financing conditions mentioned under point (c) of the first subparagraph.

Article 5 - Anti-Abuse Rules

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 6 - Limitation to Interest Deduction

1. Member States shall ensure that a taxpayer is able to deduct from its taxable base for corporate income tax purposes exceeding borrowing costs as defined in Article 1, point (2), of Council Directive (EU) 2016/1164 35 up to an amount (a) corresponding to 85% of such costs incurred during the tax period. If such amount is higher than the amount (b) determined in accordance with Article 4 of Directive (EU) 2016/1164, Member States shall ensure that the taxpayer be entitled to deduct only the lower of the two amounts in the tax period. The difference between the two amounts (a) and (b) shall be carried forward or back in accordance with Article 4 of Directive (EU) 2016/1164.

2. Paragraph 1 shall apply to exceeding borrowing costs incurred from [OP insert the date of entry into force of this Directive].

CHAPTER III
MONITORING AND REPORTING

Article 7 - Monitoring

Within 3 months from the end of every tax period, each Member State shall communicate the following information to the Commission regarding the tax period:

(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; 

(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;

(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;

(d)the total amount of exceeding borrowing costs;

(e)the total amount of non-deductible exceeding borrowing costs.;

(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;

(g)the data on the evolution in the Member State of the debt/equity ratio, within the meaning of Annex III, parts (A) and (C) to Directive 2013/34/EU.

Article 8 - Reports

1. By 31 December 2027, the Commission shall present a report to the European Parliament and to the Council on the implementation of this Directive.

2. When drawing up the report, the Commission shall take into account the information communicated by Member States pursuant to Article 7.

3. The Commission shall publish the report on its website.

CHAPTER IV
FINAL PROVISIONS

Article 9 - Exercise of Delegation

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 10 - Informing the European Parliament

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

Article 11 - Transposition

1. Member States shall adopt and publish, by [31 December 2023] at the latest, the laws, regulations and administrative provisions necessary to comply with this Directive. They shall forthwith communicate to the Commission the text of those provisions.

They shall apply those provisions from [1 January 2024].

When Member States adopt those provisions, they shall include a reference to this Directive or accompany those provisions with such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made.

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. 

3. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive.

Article 12 - Entry into force

This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

Article 13 - Addressees

This Directive is addressed to the Member States.