On the 11 May 2022, the European Commission published a proposal for a Directive, whose intended purpose is to reduce the present inequality which exists and which is the result of financing an enterprise through equity financing (thus no tax deductions are available) versus debt financing (wherein tax deduction for interest is available).
This initiative aims to encourage companies to finance their investment through equity contributions rather than through debt financing. Over-indebtedness could threaten the stability of the financial system and increase the risk of bankruptcies, which would in turn increase unemployment. The initiative will introduce an allowance for equity-financed new investments, to mitigate debt bias. The whole scheme will incorporate a number of robust anti-tax avoidance rules to ensure tax fairness.
