Action Item 4 on intrest deductions US Counc活动内容4对利息扣除美国会议.docVIP

BEPS Action 4 Analysis of Alternative Approaches to Limiting Interest Deductions The following is an outline analyzing alternative approaches that tax authorities have taken, or have proposed taking, to limit the amount of interest expense a company may deduct. Countries have taken many different approaches to limiting the amount of interest deductions a company may claim. In evaluating alternative approaches, a threshold question arises: what objective is the tax limitation designed to achieve? Are the rules driven by concerns about tax incentives to incur excessive levels of debt, given the disparate tax treatment of debt and equity? Are the rules aimed at related-party borrowing, given the debt/equity and transfer pricing issues that can arise in the case of related-party transactions? Are the rules driven by concerns about the expense/income mismatch that can arise if a company borrows to invest in tax-exempt assets? This paper compares four alternative approaches to limiting interest deductions: i) thin capitalization rules; ii) limitations on the deductibility of interest expense allocable to exempt foreign investments; iii) general limitations on the amount of interest expense a company may deduct; and iv) limitations targeted at related-party debt. The paper concludes that, on balance, a well-designed set of thin cap rules represents the best approach among the alternatives to regulating the amount of interest expense a company may deduct. General At the outset, it’s important to note that there are many considerations, other than tax, that factor into the capital structure of an entity, including regulatory, legal, commercial and economic considerations. Debt provides a method of funding a company without giving away upside economics or voting power. In the case of a financial services business, debt is the core supply input, and interest expense is equivalent to the cost of goods sold. In the context of intercompany funding, debt achi