OECD Consults On Interest Deductions, Financial Payments

by Ulrika Lomas, Tax-News.com, Brussels

26 December 2014

On December 18, 2014, the Organisation for Economic Cooperation and Development (OECD) released for public comments a discussion draft on base erosion and profit shifting (BEPS) Action 4, on interest deductions and other financial payments.

The discussion draft stresses the need to address BEPS using deductible payments such as interest that can give rise to double non-taxation in both inbound and outbound investment scenarios. It examines existing approaches to tackling these issues and sets out different options for approaches that may be included in a best practice recommendation. The discussion draft considers issues including:

• What is interest and what are payments economically equivalent to interest;
• Who a rule should apply to, and specifically, whether a rule should apply to the level of debt or interest expense, and to a gross or net position;
• Whether a small entity exception or threshold should apply;
• Whether interest deductions be limited with reference to the position of an entity's group;
• Whether interest deductions be limited with reference to a fixed ratio;
• Whether a combined approach be applied;
• The role of targeted rules;
• The treatment of non-deductible interest expense and double taxation;
• Considerations for groups in specific sectors; and
• Interaction with other areas of the BEPS Action Plan.

The OECD is to accept responses on the discussion draft until February 6, 2015. The discussion draft will be subject to a public consultation at the OECD Conference Centre in Paris on February 17, 2015.

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