A second consultation, on the detailed policy design and implementation of the new rules, has now been published.
On 12 May 2016, a second consultation document on the UK’s implementation of the OECD’s recommendations under BEPS Action 4 was published. The Government has already announced that new rules on interest deductibility will be introduced from April 2017 in line with the recommendations set out in the OECD report and an initial consultation document was published in October 2015. The key policy design features for a restriction on the tax deductibility of corporate interest expense were included in the Business Tax Roadmap published alongside Budget 2016. This latest consultation seeks stakeholder input on the detailed design of the new rules to inform the drafting of the legislation for Finance Bill 2017.
The 92 page consultation document sets out further detail on the proposed design of the new rules together with 46 specific questions on which HM Treasury is seeking the views of stakeholders.
Our initial thoughts are that there is a lot of detail to digest and the final rules will be complex in their operation.
There has also been a ‘mixed bag’ in terms of addressing the key concerns of stakeholders that were raised in response to the initial consultation. Some areas appear to have been acknowledged (e.g. exclusion of foreign exchange movements from the definition of interest) whereas others have not been reflected in the detailed proposals. For example the proposed Public Benefit Project Exemption (PBPE) appears to be very narrow in application and does not extend to cover related party interest. As a result this is likely to have limited additional benefit to a key sector for inward investment into the UK.
Overall, it is clear that UK business will face a real (and significant) impact as a result of these proposals with both an additional financial and administrative burden.
Stakeholders have until 4 August to digest the content, understand its implications and submit responses. We will release further commentary as we work through the detail of the document. Please follow our BEPS Action 4 Tax Diary for updates during the consultation period.
For further information please contact :