Wednesday, 17 August 2016

OECD seeks comments on use of a group ratio to determine limit on interest deductibility P

A company may be able to deduct more of its debt finance costs if discussion draft proposals published for comment 11 July 2016, by the Organisation for Economic Co-operation and Development (OECD) are finalised and adopted by the company’s residence territory. The discussion draft considers debt finance costs in light of the company’s worldwide group position.
In the October 2015 Report on the Base Erosion and Profit Shifting (BEPS) Action Plan, recommendations under Action 4 would limit the deductibility of interest and payments economically
equivalent to interest. The limitations would apply to related and unrelated party interest expense. The G20 countries endorsed the Report and many can be expected to implement these restrictions as will other countries involved in the BEPS project. Other developing countries are being encouraged to consider the BEPS Action Plan recommendations.
The Report included a ‘fixed ratio rule’ which would limit an entity’s net interest deductions to a set percentage of its taxable earnings before interest income and expense, depreciation and amortisation (tax-EBITDA) calculated using tax principles. However, the Report recognised that higher limits may be warranted in some groups, and provided that further work would be conducted on elements of the design and operation of a ‘group ratio rule’. The alternative approaches being considered, the  determination of potentially important components like a group’s net third party interest expense and ‘group-EBITDA’ plus the impact of losses are considered in the new discussion draft published on 11 July 2016.
The views and proposals included in this discussion draft do not yet represent consensus views of the OECD’s Committee on Fiscal Affairs or its subsidiary bodies but are intended to provide stakeholders with substantive proposals for analysis and comment. The OECD considers that stakeholder Comments are essential to advancing this work.

Source & more info: PWC