ICC comments on the OECD Discussion Draft on BEPS Action 4: Interest Deductions and other Financial Payments (2015)
In the second phase of the G20 endorsed OECD/BEPS Action Plan, ICC submitted comments to the OECD’s Discussion Draft on Action 4, concerning interest deductions and other financial payments.
Action 4 of the OECD Base Erosion and Profit Shifting (BEPS) plan stresses the need to address base erosion and profit shifting using deductible payments such as interest that can give rise to double non-taxation in both inbound and outbound investment scenarios.
BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes and/or to shift profits to locations where there is little or no real activity but the taxes are low.
As the world business organization, ICC emphasizes that the suggestions raised by the OECD in the Discussion Draft would dramatically change the effective tax rate for a large number of corporate groups. ICC is highly concerned that, while claiming to tackle tax, the OECD seems to have no consideration of the substance of financing structures or commercial motive – including overarching business aims to generate profits as a result investment. Moreover, the perceived assumption that payment of interest is a tax avoidance device, which is obviously not the case for the vast majority of tax payers, is very worrisome.
ICC therefore recommends that:
- Any changes to interest deductibility should be focused on tackling actual avoidance entered into by the minority, and not impede genuine commercial transactions of the vast majority of taxpayers, which contribute to economic growth.
- The arm’s length approach should not be discarded.
It its submission to the OECD, ICC makes further recommendations for guiding principles while highlighting the possible significant negative effect of the OECD’s proposals on cross-border trade and economic growth. ICC sincerely hopes that the OECD, its Member States and the G20 will duly note the concerns and recommendations of the wider business community.