The Australian Tax Office (ATO) has recently issued guidance on thin capitalization arm’s length debt and outbound interest-free loans.
The guidance is especially valuable as it provides a risk assessment framework outlining their compliance approach to arm’s length debt.
The ATO is known for its reference to risk assessment frameworks, as this trend will continue in other countries and is a valuable read.
Finland is expanding its rules on interest deductibility, including additional breadth over the OECD/BEPS Actions. Finland is following many other countries, in disallowing such deductions while not providing a deferral/exemption of interest income in the related jurisdiction for interest income.
Additionally, US tax reform has also introduced new interest limitation rules, based upon a 30% tax adjusted EBITDA concept.
This is the ideal time to review one’s capital structure worldwide; is it achieving the economic interests that were in place? Most MNE’s will be affected in one or more countries from the BEPS, and expanded BEPS, actions by many countries. The expanded legislative framework dictates a new review of global capital structures.