Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/289449 
Year of Publication: 
2024
Series/Report no.: 
ZEW Discussion Papers No. 24-014
Publisher: 
ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung, Mannheim
Abstract: 
The European Commission recently implemented the minimum tax directive (Pillar Two) to ensure that corporate profits are at least taxed at 15%. At the same time, it proposed a legislative initiative aimed at reducing the tax-induced distortions between debt and equity financing (debt-equity bias reduction allowance directive, DEBRA). In our simulation analysis, we evaluate how the two measures and their interplay influence the EU Member States' effective tax levels and thus their location attractiveness. We find that DEBRA, on average, leads to a substantial reduction of the effective tax levels for equity-financed companies. In countries with a combined profit tax rate below 15%, Pillar Two increases the effective average tax burden. The simulation of the interaction of both regulations shows that the effect of Pillar Two dominates that of DEBRA. In addition, the results hold under a common tax base in accordance with the recently proposed "Business in Europe: Framework for Income Taxation" directive (BEFIT).
Subjects: 
Business in Europe
Framework for Income Taxation
BEFIT
Effective tax rates
Debt-Equity Bias Reduction Allowance
DEBRA
Debt-equity bias
Devereux/Griffith Methodology
Global minimum tax
Pillar Two
JEL: 
F23
H25
K34
Document Type: 
Working Paper

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