TEI comments on BEPS Action 4: Interest Deductions and Other Financial Payments.

• Position: TECHNICAL SUBMISSIONS

On February 3, TEI submitted comments to the OECD regarding its BEPS public discussion draft entitled BEPS Action 4: Interest Deductions and Other Financial Payments. TEI's comments focused on the administrative difficulties multinational companies would have in complying with the various interest limitation options proposed in the OECD discussion draft. In particular, the Institute noted that in certain circumstances the interest limitation would disadvantage multinational companies as compared to domestic competitors in a similar position. TEI's comments were prepared under the aegis of TEI's European Direct Tax Committee, whose chair is Nick Hasenoehrl. Benjamin R. Shreck, TEI Tax Counsel, coordinated the preparation of TEI's comments.

On July 19, 2013, the OECD published an Action Plan on Base Erosion and Profit Shifting (hereinafter the Action Plan or the Plan) setting forth 15 actions the OECD will undertake to address a series of issues that contribute to the perception that individual countries' tax bases are being eroded or profits shifted improperly. Pursuant to Action 4 of the Plan, on December 18, 2014 the OECD published a document entitled BEPS Action 4: Interest Deductions and Other Financial Payments (hereinafter the Discussion Draft or Draft). The OECD solicited comments from interested parties no later than February 6, 2015. On behalf of Tax Executives Institute, Inc. (TEI), I am pleased to respond to the OECD's request for comments.

TEI Background

TEI was founded in 1944 to serve the needs of business tax professionals. Today, the organisation has 56 chapters in Europe, North and South America, and Asia. As the preeminent association of in-house tax professionals worldwide, TEI has a significant interest in promoting tax policy, as well as the fair and efficient administration of the tax laws, at all levels of government. Our nearly 7,000 individual members represent over 3,000 of the largest companies in the world. (1)

TEI Comments

TEI commends the OECD for the thorough work regarding potential base erosion and profit shifting issues with respect to interest deductions and other financial payments, as reflected in the Discussion Draft. Regrettably, the Draft is another manifestation of the OECD's move away from the arm's length principle in various respects during the course of its BEPS project. Moreover, the approaches for limiting interest deductions within a multinational enterprise (MNE) present many difficult, if not intractable, practical problems in their interpretation and application. In addition, the Discussion Draft undermines an MNE's ability to arrange their own financing, re-characterises genuine commercial arrangements, and seemingly fails to recognise that entities may have different levels of interest expense depending on their circumstances.

Non-tax Financing Considerations

The OECD gives the impression throughout the Discussion Draft that all MNEs arrange their financing for tax purposes. The Draft also assumes MNEs can...