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TMI BlogAction 4 – Limitation on Interest DeductionX X X X Extracts X X X X X X X X Extracts X X X X ..... generation of tax exempt income. BEPS action plan 4 calls for the development of recommendations for the design of domestic rules to prevent tax base erosion through the use of interest expense and other financial payments that are economically equivalent to interest. To address the risk, Action 4 of the Action Plan on Base Erosion and Profit Shifting (BEPS Action Plan, OECD, 2013) called for recommendations regarding best practices in the design of rules to prevent base erosion through the use of interest expense. The 2015 Report established a common approach which directly links an entity s net interest deductions to its level of economic activity, based on taxable earnings before interest income and expense, depreciation and amor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le' to allow an entity to claim higher net interest deductions, based on a relevant financial ratio of its worldwide group. The report included a detailed outline of a rule based on the net third party interest/EBITDA ratio of a consolidated financial reporting group, and provided that further work would be conducted in 2016 on elements of the design and operation of the rule. The updated report does not change any of the conclusions agreed in 2015, but provides a further layer of technical detail to assist countries in implementing the group ratio rule in line with the common approach. This emphasises the importance of a consistent approach in providing protection for countries and reducing compliance costs for groups, while including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their domestic legislation with the recommendations of BEPS Action 4. From the commencement of 2019, the EU Member States apply an interest cap that restricts a taxpayer s deductible borrowing costs to generally 30% of the taxpayer s earnings before interest, tax, depreciation and amortisation (EBITDA). Various other countries have also taken steps to limit interest deductibility (e.g., Argentina, India, Malaysia, Norway, South Korea) or are in the process of aligning their domestic legislation with the recommendations of Action 4 (e.g., Japan, Peru, Viet Nam). The latest edition of Corporate Tax Statistics published in July 2020 collected, for the first time, information on interest limitation rules, which can assist in understanding p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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