We recognise the need to address any double nontaxation which arises as a result of deductible interest or other similar payments. Introductionthe uk treasury and hmrc have published a detailed consultation on the legislation which will be introduced next year to restrict interest deductions for uk groups following action 4 of the oecd beps initiative. Interest deduction, corporate groups and tax jurisdictions. The deduction of interest and payments economically equivalent to interest is lim. On 19 july 20, the oecd published an action plan on base erosion and profit shifting hereinafter the action plan or the plan setting forth 15 actions the oecd will undertake to address a series of issues.
Transfer pricing aspects of crossborder commodity transactions. The suggested solution is for countries to limit the deductibility of interest and other financing costs in order to limit abuse. And this will cause dealmakers at infrastructure funds, pension funds and sovereign wealth funds to sit up and take notice. Base erosion and profit shifting beps are taxavoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or notax locations. Oecd releases discussion draft on interest deductions in. The primary approach will be a fixed ratio rule based on limiting an entitys net deductions for interest to a percentage of ebitda. Oecd releases discussion draft on interest deductions under. Action 4 of this plan stresses the need to address base erosion and profit shifting using deductible payments such as interest that can give rise to double nontaxation in both inbound and outbound investment scenarios. The action 4 recommendations aim to limit base erosion through the use of interest expense to achieve excessive interest deductions or to finance the production of exempt or deferred income. The consultation document and our submission are availble to view below in pdf format. Limiting base erosion involving interest deductions and other financial payments, action 4 2016 update oecdg20 base erosion and profit shifting project addressing base erosion and profit shifting is a key priority of governments around the globe.
Interest deductibility summary the oecd has set out a recommended approach to tackling beps that arises due to the allocation of financing costs. In general terms, the recommended approach in oecd beps action 4 can be described as follows. Interest deductions and other financial payments the discussion draft or the draft, sets forth several alternative approaches to limiting deductions for interest expense. Addressing base erosion and profit shifting beps is a key priority of governments. The workstream will also develop guidance for the transfer pricing of debt arrangements. Interest deductions and other financial payments the draft, which outlines a number of. Oecd action 10 strategizing multinational tax risks. Limiting base erosion involving interest deductions and other financial payments, action 4 2015 final report the mobility and fungibility of money makes it possible for multinational groups to achieve favourable tax results by adjusting the amount of debt in a group entity. The ease of locating debt in virtually any jurisdiction because of the fungibility of money and flexibility of financial instruments, means that the use of deductible interest and similar financial payments to reduce the tax base in high tax jurisdictions is a particularly widespread issue. This is the part that deals with interest expense and deductions on debt structures. Beps actions implementation by country action 4 interest deductions on 5 october 2015, the g20oecd published final reports and an explanatory statement outlining consensus actions under the base erosion and profit shifting beps project. The action 4 report from the organisation for economic cooperation and development oecd aimed to address base erosion and profit shifting risks that arise from interest deductions. Oecd action 9 strategizing multinational tax risks. Oecd issues final report with recommendations on a best.
Action item 4 of the beps project specifically addresses the risk of beps through interest deductions, and identifies three basic scenarios involving such risk. Tax systems that provide income tax deductions for interest without. Interest deductions and other financial payments dated 18 december 2014. On 5 october 2015, the g20oecd published final reports and an explanatory. Limiting base erosion involving interest deductions.
Jan 18, 2018 the recommendation made in 2015 is to align interest deductions with taxable economic activity. Limit base erosion via interest deductions and other financial payments this report is based on the oecds report on action 11 that seeks to limit base. Ciot comments 6 february 2015 ptechsubsfinalit2015 4 4. Ey appreciates the opportunity to submit these comments to the oecd on the discussion draft on beps action 4. Interest deductions and other financial payments introduction the british property federation bpf is the voice of property in the uk, representing businesses owning, managing and investing in property. A hitchhikers guide to an aspect of the beps project april 1, 2014. Mexico implements beps action 4 to limit interest deductibility. The work by the inclusive framework member jurisidictions on action 4 resulted in the 2015 oecd report limiting base erosion involving interest deductions.
As the oecd discusses options for action 4, icc recommends a principled approached to address whether and how to limit interest expense deductions based on the principles outlined below. You can copy, download or print oecd content for your own use, and you. Comments on oecd discussion draft on beps action 4. Limiting base erosion involving interest deductions and other financial payments, action 4 2016 update. The final report on ap 4 also indicated that the oecd will continue to conduct detailed work on the design and operation of the. Much of the recent activity has been focused on implementing action 4 of the beps action plan. Development oecd released a discussion draft under its action plan on base erosion and profit shifting beps. On 28 july the oecd released a discussion draft relating to deductions for interest in the banking and insurance sectors. Base erosion by intragroup debt and beps project action 4s. Response to hmt consultation on tax deductibility of corporate interest expense january 2015. Antibase erosion provisions, territorial tax systems in. Oecd releases discussion draft on interest deductions. The g20oecd base erosion and profit shifting package. Discussion draft on interest deductions and other financial payments.
Interest deductibility develop recommendations to prevent base erosion through the use of interest expense ie. Summary action this note contains additional comments received with respect to the public discussion draft on beps action 4 interest deductions and other financial payments. Release of a discussion draft on action 4 interest. The recommendation made in 2015 is to align interest deductions with taxable economic activity. Ix, box 4 show that a large majority of the largest nonfinancial companies have a net interest to ebitda ratio of below 10%. Base erosion and profit shifting beps are taxavoidance strategies that exploit gaps and. Action 4 of this plan stresses the need to address base erosion and profit shifting using deductible. Although based on a limited survey, the data in the report ch.
Beps action has been implemented by the program law of july 1, 2016 and published in the belgian official gazette of july 4, 2016. Limiting base erosion involving interest deductions and other financial payments, action 4 2016 update inclusive framework on beps the mobility and fungibility of money makes it possible for multinational groups to achieve favourable tax results by adjusting the amount of debt in a group entity. How beps action 4 operates to limit interest deductions, and. Action 2 controlled foreign corps action 3 interest deductions action 4 dispute resolution action 14 dispute resolution mechanisms e. Oecd holds public consultation on beps action 4 on. Action point 4 beps action plan, oecd, 20 recommends regarding best practices in the design of rules to prevent base erosion through the use of interest expense.
Action 4 of this plan stresses the need to address base erosion and profit shifting using deductible payments such as interest that can give rise to double nontaxation in both inbound and outbound. This is part of the ongoing work for beps action 4, limiting base erosion involving interest deductions and other financial payments, which was released as a final report in october 2015. Beps action point 4 on interest deductions and other. The oecd recognizes that cash is fungible and easily transferrable, thus permitting multinational companies to reduce taxable income through financing and interest deductions. This update provides a high level summary of the proposals and identifies some of the key issues to be considered. Limiting base erosion involving interest deductions and. According to the oecd, tackling beps requires a broader approach to the definition of interest, in order to limit the risks of new rules being. Limiting base erosion involving interest deductions and other financial payments, action 4 2016 update oecd g20 base erosion and profit shifting project addressing base erosion and profit shifting is a key priority of governments around the globe. Beps action 4 interest deductions treasury improvement. The standard was set up by the oecd in the beps project and made mandatory by the application of atad to all eu members. Understanding the new rules on interest deductibility. Limiting the impact of excessive interest deductions on.
Interest deductions and other financial payments dear mr. Technical team the ciot comments sent to the oecd 6 february 2015 on beps action 4. Limiting base erosion involving interest deductions and other. On 17 february 2015, the organisation for economic cooperation and development oecd held a public consultation in connection with the base erosion and profit shifting beps project that was focused on action 4 on the deductibility of interest deductions and other financial payments.
Common approach best practice nonbinding assessment. Of particular note to the fs industry are action 7 permanent establishment pe. The focus of action 4 is on the use of debt to achieve excessive interest deductions or to finance the production of exempt or deferred income. Action 4 aims to limit base erosion via interest other financial payments. Action 4 of the oecds beps initiative focuses on the use of interest costs by multinationals and the potential to inappropriately shift profits between tax jurisdictions. From an inbound perspective, concerns focus on excess interest deductions reducing. The deduction of interest and payments economically equivalent to. The output under each of the beps actions is intended to form a complete and cohesive approach. Although the action 4 report provided a bestpractice approach rather than a minimum standard, the oecd expected domestic rules regarding interest limitations to. Recommendations are expected to be published for domestic law limitations on tax deductions for both related and unrelated party equivalent payments.
Action country by country reporting and actions 8 10 transfer pricing. Interest deductions and other financial payments on 18 december 2014, the oecd, as part of its work on the action plan to address base erosion and profit shifting beps, released a discussion draft on action 4 in relation to the deductibility of interest expense and economically equivalent financing payments. The oecd released its public discussion draft on action point 4 of the action plan on base erosion and profit shifting hereafter beps concerning interest deductions and other financial payments. The legislation to introduce changes in the tax law further to beps action 2 hybrids, 3 controlled foreign corporations, 4 interest deductions, 7 permanent establishment and. Interest deduction level as the discussion draft rightfully notes, germany and many other countries with an earningsbased interest expense rule permit entities. For example, the united kingdom limits corporate interest deductions to 30 percent of earnings before interest deductions and taxes ebitda. Oecd ilibrary limiting base erosion involving interest. Interest deductions and other financial payments matheson welcomes the opportunity to comment on the public discussion draft issued under beps action 4 the discussion draft. We are very concerned about the farreaching implications of the options for restricting deductibility of interest expenses that are reflected in the discussion draft. Interest deductions and other financial payments background documents. Feb 20, 2015 the oecd released its public discussion draft on action point 4 of the action plan on base erosion and profit shifting hereafter beps concerning interest deductions and other financial payments. Beps actions implementation by country action 4 interest.
On 18 december 2014, the oecd released a public discussion draft entitled. Limiting interest deductions and other financial payments on october 5, 2015, the oecd released fifteen final reports on its project entitled, base erosion and profit shifting. Beps action 4 proposed limits on interest deductions. An invitation for comments was published on the oecd website on 18 december 2014, with a deadline of 6 february 2015. Masui, yoshihiro, interest deduction, corporate groups and tax jurisdictions.