On July 11, the OECD invited interested parties to provide comments on a discussion draft which deals with elements of the design and operation of the group ratio rule under Action 4 (Interest deductions and other financial payments) of the BEPS Action Plan.
According to the OECD, "the use of interest is one of the simplest profit-shifting techniques available in international tax planning. The fluidity and fungibility of money makes it a relatively simple exercise to adjust the mix of debt and equity in an entity."
Action 4 of the BEPS report includes a common approach to tackling BEPS involving interest deductions. One of the main tools to prevent BEPS in this context is a fixed ratio rule, which restricts an entity’s net interest deductions to a fixed percentage of its earnings before interest, taxes, depreciation and amortization (EBITDA) calculated using tax principles.
Throughout the year 2016, the OECD will continue its work on finalizing the design and operation of group ratio rule, one of the main tools of limitation on interest deduction (Action 4). This discussion draft has been produced as part of the follow-up work on this issue and focuses on:
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