Plans to change the rules on interest deductibility for third party payments will affect multinational companies in unexpected ways, something which the OECD BEPS reforms appear to ignore, says Bill Dodwell, head of tax policy at Deloitte
One of the scariest papers from the OECD’s Base Erosion and Profit Shifting (BEPS) project came out on 18 December. It’s called Interest Deductions and Financial Payments.
The BEPS action plan calls for the working party to ‘develop recommendations regarding best practices in the design of rules to prevent base erosion through the use of interest expense… to achieve excessive interest deductions or to finance the production of exempt or deferred income...’
The discussion draft starts by noting that ‘the use of interest (and in particular related party interest) is perhaps one of the most simple of the profit-shifting techniques’.
Arm’s length charges are rejected as a solution, which of course had been one of the OECD’s cornerstones.
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