Daniel Head, tax partner at KPMG in the UK comments on yesterday’s publication of the second consultation document on the UK’s implementation of the OECD’s recommendations under BEPS Action 4 on tax deductibility of corporate interest expense.
Commenting on yesterday’s publication of the second consultation document on the UK’s implementation of the OECD’s recommendations under BEPS Action 4 on tax deductibility of corporate interest expense, Daniel Head, tax partner at KPMG in the UK, said:
“One of the aims of the BEPS project was to try and simplify the rules in relation to the tax deductibility of interest. Yet, the detailed proposals contained in this second consultation suggest that the new UK rules will actually be far more complex. Added to this, HMT have confirmed that the new rules will apply after the application of existing UK tax rules in this area which complicates these rules even further.
“What’s also clear from the document is that there has been a ‘mixed bag’ in terms of HMT’s consideration of representations made in the previous consultation published in October 2015. While some concerns have been addressed – such as the exclusion of foreign exchange movements from the definition of interest - there are other major areas where there appears to have been little compromise reached.
“At 92 pages, the length of the consultation document and the 46 specific queries that HMT are seeking input from stakeholders on also suggests that there is still a significant amount of detail to work through in order to ensure the rules are effective and achieve the desired purpose. With so much to cover, it brings in to question whether the proposed start date for the new rules of 1 April 2017 is realistic.
“Overall, this second consultation contains a significant amount of detail to digest. Clearly final rules will be complex in their operation. As such, UK businesses will face a substantial impact as a result of these proposals with an additional financial and a significantly increased administrative burden once the rules are implemented.”
Notes to editors
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 which 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.
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