On 11 May 2022, the European Commission published a draft Directive which is intended to mitigate the tax induced debt-equity bias in corporate investment decisions. Technically, this is to be achieved through, on the one hand, an allowance that provides for the deductibility of notional interest on equity and, on the other, by introducing further restrictions on the deductibility of interest on debt.
The Supreme Tax Court has held that the application of the pre-2008 “thin capital” rule to disallow interest on related party finance breaches the discrimination prohibition of double tax treaties.
