Proposed restriction on corporate interest relief
HMRC has published a consultation on the restriction of corporate interest which is due to close on 14 January 2016.
This initiative was inspired by the Organization for Economic Cooperation and Development's (OECD) Base Erosion Profit Shifting (BEPS) in order to consider way to prevent "significant planning opportunities [that] can arise from both external and intra-group interest expenses". This initiative is aim at preventing artificial transactions not bona fide commercial transactions.
HM Treasury has published a consultation paper on its plans to restrict the tax deductibility of corporate debt costs.
The aim, according to the Treasury, is to counter 'aggressive' tax avoidance, especially by multinational companies that use cross-border debts to shift taxable profits between jurisdictions. Typically this is done by: placing higher levels of third-party debt in high tax countries; or using intra-group loans to generate interest deductions that are much higher than the group's actual third-party interest expense; or using third party or intra-group financing to fund the generation of tax-exempt income.”