On August 17, 2023 the German Federal Ministry of Finance issued a short press release announcing that the independent Scientific Advisory Board to the Ministry has presented its opinion on the European Commission's proposal for a Directive on a Debt-Equity Bias Reduction Allowance (DEBRA). The Scientific Advisory Board shares the Commission's concerns about preferential tax treatment of debts, but it does not consider the proposed Directive to be the right way forward.


The German Ministry of Finance also released a preliminary version of the Scientific Advisory Board’s Statement on the proposed Directive on a Debt-Equity Bias Reduction Allowance (DEBRA). This preliminary version is dated July 11, 2023 According to the Ministry the final version is currently being created and will be released later.

Conclusions of the Scientific Advisory Board

In July 11, version of the statement the Scientific Advisory Board concludes that although the Advisory Board supports DEBRA's objective of tackling tax incentives for debts, it believes for the following reasons the proposed measures are not the right way forward:

  1. The debt incentives are reduced, but full financing neutrality is not achieved.
  2. DEBRA applies to corporations only. An extension to partnerships, by reasons of legal form neutrality, has serious consequences for the income tax systems of the Member States.
  3. DEBRA curtails the sovereignty of the Member States, although debt incentives can also be reduced in national law. The enactment of the Directive lies outside the competence-law framework of the EU. This applies in particular to the deduction limit for interest on debts, since this is not necessary for the establishment and functioning of the internal market. Reduced income (for Member States) due to the deductibility of notional interest costs could also be achieved by raising the tax rate. It is up to the national legislature alone to decide how to appropriately compensate for shortfalls in tax revenues.
  4. The necessary interventions in the income taxation of the Member States cannot be justified with the aim of establishing and functioning the internal market.
  5. DEBRA, in conjunction with the EU-wide harmonized interest cap, could lead to unsystematic tightening of taxes.
  6. The relationship between the proposed DEBRA and the introduction of global minimum taxation as decided by the EU needs clarification.
  7. With the deduction restriction for interest on debts DEBRA violates the objective net principle. The purpose of the restriction is not to make it more difficult for large companies to avoid taxes, but its only purpose is to counter-finance the loss of revenue caused by the recognition for tax purposes of notional interest costs. It particularly affects small and medium-sized companies that primarily use debts to finance investments and not for tax planning purposes.


The preliminary version of the statement the Scientific Advisory Board can be found here (only available in the German language)



Copyright – internationaltaxplaza.info



Follow International Tax Plaza on Twitter (@IntTaxPlaza)



Submit to FacebookSubmit to TwitterSubmit to LinkedIn