15 Amendments of Isabel BENJUMEA BENJUMEA related to 2022/0154(CNS)

Proposal for a directive
Recital 1 a (new)

(1 a) The promotion of a competitive and resilient Capital Markets Union, having a strong equity market as one of its pillars, is essential for the promotion of jobs, economic growth and investment. This is particularly important in a context of foreseened economic downturn and after a succession of economic crisis that led many companies to rely on debt instruments. Private investment through equity is pivotal to tackle the economic challenges that lie ahead. Therefore, a legal instrument to harmonize the legislative solutions for the debt-equity bias, without prejudice to the legitimate and effective use of debt instruments, is necessary.

2023/01/19
Committee: ECON

(2) Member States’ tax systems allow 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. It is therefore essential to safeguard a level playing field for equity solutions and debt instruments, having in regard the need to guarantee minimum levels of systematic coherence between national tax frameworks, namely at the tax benefits level.

2023/01/19
Committee: ECON

Proposal for a directive
Recital 2

(2) Member States’ tax systems allow 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. Due to the recent crises and debt problems in the single market there is an urgent need for this reform that puts equity and debt on equal footing and does not give an advantage to debt financing.

2023/01/19
Committee: ECON

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, in full respect of the EU institutional framewok on tax matters established by the treaties. 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 in the short term for Member States’ budgets. Such framework should therefore include rules, on the one hand, for the tax deductibility of equity financing costs and, on the other, for limiting the tax deductibility of debt financing costs.

2023/01/19
Committee: ECON

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 to put them on equal footing with non- financial corporations.

2023/01/19
Committee: ECON

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. Once this right has been granted, it should become irrevocable. 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. Their disadvantaged situation with smaller and more complicated financing possibilities and their exposure to longer loss periods leads to the need for longer tax deductibility periods than for larger companies. 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.

2023/01/19
Committee: ECON

Proposal for a directive
Recital 7

(7) To effectively address the tax- related debt-equity bias in a manner sustainable for the Union’s public finances, an allowance for equity financing should be accompanied by a limitation on the deductibility of debt financing costs. An interest limitation rule should therefore limit the deductibility of exceeding borrowing costs and apply independently from the allowance, excluding from this to the SMEs and their loans, as they are more vulnerable. 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

Proposal for a directive
Recital 9

(9) In order to evaluate the effectiveness of this Directive, the Commission should prepare and publish an evaluation report on the basis of the information provided by Member States and of other available data. The evaluation should include a section dedicated exclusively to SMEs and the impact on them. In the case of poor results, the Commission should present a proposal to remedy the problems identified.

2023/01/19
Committee: ECON

Proposal for a directive
Article 4 – paragraph 1 – subparagraph 1

An allowance on equity shall be deductible, for 105 consecutive tax periods for large companies and 20 consecutive periods for SMEs, 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 ”).

2023/01/19
Committee: ECON

Proposal for a directive
Article 4 – paragraph 1 – subparagraph 3

Member States shall ensure that the taxpayers may carry forward, for a maximum of 10 tax periods for larger companies and a maximum of 15 tax periods for SMEs, the part of the allowance on equity which exceeds 30% of EBITDA in a tax period.

2023/01/19
Committee: ECON

Proposal for a directive
Article 4 – paragraph 2 – subparagraph 1

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, in other words, the year-on-year increase in own funds.

2023/01/19
Committee: ECON

Proposal for a directive
Article 4 – paragraph 2 – subparagraph 2

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 1,5% or, where the taxpayer is an SME, a risk premium of ~~1.5~~2%.

2023/01/19
Committee: ECON

Proposal for a directive
Article 4 – paragraph 3

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 105 consecutive tax periods for large companies and 20 consecutive periods for SMEs, 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.

2023/01/19
Committee: ECON