American Chamber of Commerce in Italy
AmCham Italy
American Chamber of Commerce in Italy (AmCham Italy) ha lo scopo di sviluppare e favorire le relazioni economiche e culturali tra gli Stati Uniti d'America e l'Italia, oltre che tutelare gli interessi dei propri associati nell'ambito dell'attività di business tra i due Paesi.
ID: 340531444992-38
Lobbying Activity
Response to Debt equity bias reduction allowance (DEBRA)
29 Jul 2022
American Chamber of Commerce in Italy (AmCham Italy) is the organization representing the transatlantic interests in Italy.
Advocacy activities, developed through 21 Committees, have the aim to strengthen transatlantic relationship and to increase the Italian attractiveness for U.S. investors.
Among our Committees, Tax Policy Committee is one of the most active and prestigious, working on several tax issues and creating position papers and/or documents to provide feedback to consultations at European and Italian level.
AmCham Italy appreciates the Commission’s initiative to promote the development of equity investment in the European Union economy, by mitigating the tax induced bias in the debt-equity trade off through harmonised regulations.
As mentioned in the working papers, six member States have already introduced an allowance for equity in order to tackle the bias, without coordination.
Among them, Italy has introduced the so-called “Aiuto alla crescita Economica – ACE” (art. 1, Law Decree no. 201/2011).
Both the DEBRA proposal and the Italian “ACE” provide for a notional tax deduction on new equity, computed by multiplying the allowance base with the relevant notional interest rate.
Now, AmCham Italy suggests that the EU Commission carefully examines possible interactions between the DEBRA Directive and the recently implemented United States of America’s anti-hybrid regulations, given certain U.S. interpretations.
In particular:
- Sec. 267A of the U.S. Code generally disallows a deduction for interest or royalties paid or accrued in certain transactions involving a hybrid arrangement when U.S. law allows a deduction, but the payee does not have a corresponding income inclusion under foreign tax law.
- In April 2020, the Treasury Department and IRS implemented hybrid mismatch regulations (see TD 9896), effective for tax years ending on or after December 20th, 2018. The regulations are highly technical and obscure in certain passages.
- Apparently, most interpreters disallow interest deduction by a U.S. entity where the Italian lender benefits from “ACE”.
AmCham Italy believes that DEBRA regulations should allow European Groups to finance through equity, without suffering from tax limitations when operating in markets outside EU through their subsidiaries and branches, especially in U.S.
Hence, AmCham Italy suggests the EU Commission to dialogue with the U.S. Government and tax authorities in order to ascertain which specific rules would not imply the application of the U.S. hybrid mismatch regulations to EU businesses benefitting from the DEBRA tax allowance.
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