With regards to interest limitation, the directive proposes (in line with OECD’s BEPS Action 4) that interest deduction for net interest shall be limited to 30% x EBITDA (earnings before interest, tax, depreciation and amortization) (tax adjusted) or EUR 1 million (whichever is higher). There is also a supplementary rule under which interest deductions will still not be limited if the company's equity / assets ratio is the same as or higher than that of the group.

These standards are intended to provide a minimum level of protection for Member States and national implementing rules may therefore go further.

From a Swedish perspective, the Directive may lead to some legislative changes if implemented. In particular, it can be noted that Sweden now has an additional parameter to take into account in the ongoing work on new interest deduction limitation rules. If the directive is adopted Sweden will be bound to implement earnings-stripping rules within a certain period of time. The Commission’s proposed limitation (EBITDA x 30%) is set at the highest end of the BEPS limitation corridor of 10-30%. However, it should be recalled that the Directive is only prescribing a minimum requirement, and that it is permissible for countries to apply stricter rules. Thus, no definite conclusion about the future Swedish interest deduction limitation can be drawn at this stage.

The proposals are likely to undergo changes as the political debate develops. However, both Commissioner Moscovici and the new Dutch presidency have already expressed their intention to adopt the anti-BEPS directive before the end of the Dutch six-month mandate. Therefore a relatively quick adoption of the standards laid down in today’s proposals cannot be excluded.

Read more in KPMG Euro Tax Flash issue 273