Limiting base erosion involving interest deductions and other financial payments, action 4-2015 fina

Use of interest and payments economically equivalent to interest for base erosion and profit shiftingOutbound investmentInbound investmentBEPS Action Plan and interest expenseExisting approaches to tackle base erosion and profit shifting involving interestEuropean Union law issuesNotesBibliographyRecommendations for a best practice approachInterest and payments economically equivalent to interestWho a best practice approach should apply toEntities which are part of a multinational groupEntities which are part of a domestic groupStandalone entities which are not part of a groupDe minimis thresholdNotesBibliographyApplying a best practice approach based on the level of interest expense or debtApplying the best practice approach to limit the level of interest expense or debt in an entityApplying the best practice approach to limit an entity’s gross interest expense or net interest expenseAn option to exclude certain public-benefit projectsNotesBibliographyMeasuring economic activity using earnings or asset valuesMeasuring economic activity using earningsDefinition of earningsMeasuring economic activity using asset valuesProposed approachNotesBibliographyFixed ratio ruleAim of a fixed ratio ruleOperation of a fixed ratio ruleStep 1: Calculating the measure of earningsStep 2: Applying the statutory benchmark fixed ratio to earningsStep 3: Comparing maximum deductible interest expense with actual interest expenseSetting a benchmark fixed ratioA corridor of benchmark fixed ratiosFactors to assist countries in setting a benchmark fixed ratioApplying factors to set a benchmark fixed ratio within the best practice corridorChanges over timeNotesBibliographyGroup ratio ruleAim of a group ratio ruleOption to apply different group ratio rules, or no group ratio ruleObtaining financial information on a groupDefinition of a groupOperation of a group ratio ruleStage 1: Determine the group’s net third party interest/EBITDA ratioCalculation of net third party interest expenseApproach 1: Using unadjusted financial reporting figuresApproach 2: Using financial reporting figures adjusted for certain amountsApproach 3: Using a financial reporting valuation of interest and other payments specified in Chapter 2Proposed approachCalculation of group EBITDAStage 2: Apply the group’s ratio to an entity’s EBITDADetermining an entity’s tax-EBITDADetermining an entity’s accounting-EBITDAAddressing the impact of loss-making entities on the operation of a group ratio ruleNotesAddressing volatility and double taxationMeasuring economic activity using average EBITDACarry forward and carry back of disallowed interest and unused interest capacityTargeted rulesAim of targeted rulesTargeted rules to prevent avoidance of the general rulesTargeted rules to address other base erosion and profit shifting risksDefinition of "related parties” and "structured arrangements"Related partiesStructured arrangementsApplying the best practice approach to banking and insurance groupsImplementing the best practice approachImplementation and co-ordinationTransitional rulesSeparate entity and group taxation systemsCountries applying separate entity taxation systemsCountries applying group taxation systemsInteraction of the best practice approach with hybrid mismatch rules under Action 2Interaction of the best practice approach with controlled foreign company rules under Action 3Interaction of the best practice approach with other rules to limit interest deductionsInteraction of the best practice approach with withholding taxesBibliography
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