In 2013, the Organisation for Economic Co-operation and Development (OECD) launched the project on Base Erosion and Profit Shifting (BEPS) with the support of G20 countries. The project is intended to be an answer to the increased perception that large multinational enterprises deliberately avoid paying their ‘fair amount of taxes’ by exploiting the loopholes and mismatches between different domestic tax systems. The idea behind the BEPS Project is to create wide international consensus around a set of rules aimed at tackling international tax avoidance and to establish the conditions to be able to constantly monitor the progress in this field. The project is articulated in fifteen Actions, and Action 41 is dedicated entirely to the improper deduction of interest by multinational enterprises. The Final Action 4 Report recommends the adoption of a fixed ratio rule limiting the deductibility of interest from 10% to 30% of the company’s EBITDA (earnings before interest, taxes, depreciation and amortization), or, alternatively, to a ratio calculated at group level, which may allow an entity to deduct more interest expenses depending on the relative net interest/EBITDA ratio of the whole group. The European Union (EU) also plays a key role in the fight against international tax evasion and avoidance.
The Interest Limitation Rule in the ATAD
MARIO GRANDINETTI
2020-01-01
Abstract
In 2013, the Organisation for Economic Co-operation and Development (OECD) launched the project on Base Erosion and Profit Shifting (BEPS) with the support of G20 countries. The project is intended to be an answer to the increased perception that large multinational enterprises deliberately avoid paying their ‘fair amount of taxes’ by exploiting the loopholes and mismatches between different domestic tax systems. The idea behind the BEPS Project is to create wide international consensus around a set of rules aimed at tackling international tax avoidance and to establish the conditions to be able to constantly monitor the progress in this field. The project is articulated in fifteen Actions, and Action 41 is dedicated entirely to the improper deduction of interest by multinational enterprises. The Final Action 4 Report recommends the adoption of a fixed ratio rule limiting the deductibility of interest from 10% to 30% of the company’s EBITDA (earnings before interest, taxes, depreciation and amortization), or, alternatively, to a ratio calculated at group level, which may allow an entity to deduct more interest expenses depending on the relative net interest/EBITDA ratio of the whole group. The European Union (EU) also plays a key role in the fight against international tax evasion and avoidance.
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