HMRC launches a consultation on the tax deductibility of corporate interest expense for multinational companies
The HMRC consultation follows the October 2015 release by the OECD of their best practice recommendations on interest expense.
The OECD identified interest expense as one of the key areas where there is significant opportunity for base erosion and profit shifting (BEPS) by multinational companies.
The three basic scenarios of concern to the OECD are:
- groups placing higher levels of third party debt in high tax countries
- groups using intra-group loans to generate interest deductions greatly in excess of the group’s actual third party interest expense
- groups using third party or intragroup financing to fund the generation of tax exempt income
The consultation will run until 14 January 2016, but it is unlikely that new rules will be introduced in the UK before 1 April 2017.