Interest Deductions and Multinational Enterprises: Goldilocks and the Brave New World

Abstract

This article compares the “brave new” group-wide approach under Action 4 of the G20/OECD Base Erosion and Profit Shifting initiative to the fixed ratio alternative. The conclusion in this article is that the group-wide approach – which is not as novel as some assume – should be supported. Resisting the “Goldilocks” standard of perfection, it can be combined with a modest fixed ratio safe harbour.

Keywords: BEPS, Action 4, related party debt, debt shifting, interest allocation, interest cap, safe harbor, intragroup debt, interest barrier, transfer pricing, thin capitalization, earnings stripping, group-wide ratio, fixed ratio rule, combined rule, combined approach

JEL Classification: K10, K30, K34