6.4.2022
EN
Official Journal of the European Union
C 152/15
3.2.
However, corporate tax systems treat debt financing more favourably than equity financing, in that interest payments are tax-deductible but not the cost of equity financing.
This result in increased leverage (debt levels) and therefore vulnerability of the firms in times of economic turbulence.
3.3.
To deliver a sustainable green and digitalised economy, the debt-equity financing distortion needs to be addressed.
Dividends, which face double taxation (first at corporate level and then at shareholder level), are important not only as income for pensioners and for funding research institutions, but in particular as a source of funding for greenfield investment.
3.4.
Investment in new, greener investment projects is associated with a high level of risk.
Equity financing is therefore the preferred source of financing.
A key area for enhancing private sector participation in green and digital investment is the removal of obstacles to sources of new investment capital.
3.5.
For new firms and for investors seeking greener and digitalised investment opportunities, a well-functioning capital market is essential.
The availability of capital is crucial for a successful outcome.
Dividends help increase the liquidity in the market.
3.6.
Sustainability is already a market-driven, competitive factor that is key to companies’ ability to attract customers, employees and investors.
Consideration for sustainability is good for the long-term survival of the company.
Regulatory tools must be constructed in such a way as to support the pursuit of these goals in line with the basic principles of how businesses operate.
3.7.
While there should be no interference with dividend policies or undue influence on the composition of boards of directors or enforcement of directors’ liability toward a company, proper incentives for a greener economy are needed.
The governance of a company must take into account corporate social responsibility, relevant European directives and the OECD guidelines for multinationals.
3.8.
Global warming is a concern for us all, and companies should be paying the proper market price for emissions and reducing CO2 in the atmosphere.
This means not only taxes on CO2 emissions but also subsidies for those activities that reduce CO2 in the atmosphere.
3.9.
Another important area for achieving the objectives of a greener and digitalised economy is taxation of increasingly digitalised firms.
A global, consensual solution is needed and a comprehensive agreement is expected to be finalised before year end.
Taxes on digital services should not harm innovation or disincentivise investments in digital technologies.
4.
Debt/equity bias in corporate taxation 4.1.
The debt/equity bias in the corporate tax systems affects socioeconomic costs as well as firms’ leverage and corporate governance.
Excessive reliance on debt financing can undermine the achievement of the European Commission’s objectives as companies become financially vulnerable, and the possibility of undertaking new and risky green investment projects will be adversely affected.
The ability to pay dividends so that investors get to decide on whether to invest in new projects will be restrained.
4.2.
The current tax rules make interest paid on loans deductible from the tax base, while that is not the case for equity payments.
Equity payments consist of two parts: dividend payments and capital gains.
These national rules make financing through debt clearly more advantageous than financing through equity.
4.3.
A dedicated allowance intended to give companies more similar tax treatment for equity financed investment than they currently get for debt-financed investment could reduce corporate vulnerability and be a useful means to promote sustainable, greener and digital investment.