Limiting Base Erosion Involving Interest Deductions and Other Financial Payments, Action 4 - 2015 Final Report [electronic resource] /
Organisation for Economic Co-operation and Development.
Organisation for Economic Co-operation and Development.
Paris : OECD Publishing,
2015.
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 recommended approach ensures that an entity's net interest deductions are directly linked to its level of economic activity, based on taxable earnings before deducting net interest expense, depreciation and amortisation (EBITDA). This approach includes three parts: a fixed ratio rule based on a benchmark net interest/EBITDA ratio; a group ratio rule which allows an entity to deduct more interest expense in certain circumstances based on the position of its worldwide group; and targeted rules to address specific risks. A country may choose not to introduce the group ratio rule, but in this case it should apply the fixed ratio rule to multinational and domestic groups without improper discrimination.
Introduction Chapter 1. Recommendations for a best practice approach Chapter 2. Interest and payments economically equivalent to interest Chapter 3. Who a best practice approach should apply to Chapter 4. Applying a best practice approach based on the level of interest expense or debt Chapter 5. Measuring economic activity using earnings or asset values Chapter 6. Fixed ratio rule Chapter 7. Group ratio rule Chapter 8. Addressing volatility and double taxation Chapter 9. Targeted rules Chapter 10. Applying the best practice approach to banking and insurance groups Chapter 11. Implementing the best practice approach Annex A. European Union law issues Annex B. Data on companies affected by a benchmark fixed ratio at different levels Annex C. The equity escape rule Annex D. Examples
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 recommended approach ensures that an entity's net interest deductions are directly linked to its level of economic activity, based on taxable earnings before deducting net interest expense, depreciation and amortisation (EBITDA). This approach includes three parts: a fixed ratio rule based on a benchmark net interest/EBITDA ratio; a group ratio rule which allows an entity to deduct more interest expense in certain circumstances based on the position of its worldwide group; and targeted rules to address specific risks. A country may choose not to introduce the group ratio rule, but in this case it should apply the fixed ratio rule to multinational and domestic groups without improper discrimination.
Taxation