BEPS Action Plan: Action 4 – Financial payments

In action 4 of its BEPS Action Plan, the OECD seeks to target a broad range of what it describes as ‘excessive’ interest and other financial payments. Below, we provide commentary and links to content on the proposals.




2 September 2013

We consider companies should be at liberty to finance their operations with either equity or debt, as long as the arrangements are in line with …

transfer pricing principles on the level of debt and the rate of interest payable. It’s a basic tenet of the arm’s length principle, which the Action Plan endorses, that the tax treatment within a country should essentially be the same whether payments are made to a foreign group entity or to a third party. We also believe that a natural extension of this, as well as a consequence of market dynamics, is that the non-taxation of the income received by a recipient — whether or not a foreign recipient — should not impact upon deductibility to the payer provided the relevant TP tests are met. The OECD, however, wishes to link rules on the tax deductibility of interest with a consideration of whether the recipient is taxed on that interest.


29 August 2013

Overall, the tax authorities are probably closer to an agreed list of approved anti-base erosion measures that will apply consistently to MNCs …

 and others for financial payments than has hitherto been the case even without the additional impetus given by the Action Plan.


28 August 2013

The OECD seeks to target a broad range of what it describes as ‘excessive’ interest and other financial payments. Many countries have already …

introduced limitations to the deductibility of interest and other financial payments through a variety of methods. Tax authorities have noted the innovative ideas proposed and adopted with an eagerness to see how well they work in practice. Co-ordinating such a review in this area, as is envisaged by the Action Plan, will not require any major OECD initiative and will be a relatively simple action to tackle.

Financial payments archive

25 August 2013

The OECD has stated that the level of debt and interest in certain intra-group finance arrangements is sufficiently arbitrary that …

it is one of the situations in which the arm’s length principle breaks down and as a result ‘special measures’ are required. Restrictions on interest deductions alone  may be pursued but the OECD may also consider that the intercompany debt might be disregarded or recharacterised, as discussed in relation to transfer pricing more generally.


21 August 2013

It has been suggested there’s room for more harmonisation across territories on what constitutes an acceptable level of debt (measured in relation to available equity) and beyond which levels of debt would lead to …

interest restrictions. As transfer pricing (TP) analysis remains at the heart of the thin cap debate, some greater accord on general ‘safe harbour’ levels of debt may be most likely.


26 July 2013

The OECD’s plan to develop further guidance on guarantees, derivatives and other financial instruments will be a welcome development …

But new ways of dealing with the ever-changing commercial environment in financial markets will inevitably mean there is a constant need to keep this under review.


19 July 2013

This focus here is on the BEPS concerns from excessive deductible payments such as interest and other financial payments. The OECD concerns relate to …

both inbound and outbound investment scenarios. In relation to the inbound situation, the concern is with excessive interest deductions for the borrower coupled with no corresponding taxation of interest for the lender. The outbound perspective relates to the use of debt to finance the production of tax exempt or deferred income. The Plan states that rules for interest deductibility (and guarantees, derivative payments, etc.) should take account of these concerns.

The action point is to develop recommendations for best practices in the design of rules to prevent BEPS through the use of interest deductions and other financial payments. The work is to evaluate different types of limitation. It is also stated that transfer pricing guidance will be developed in relation to the pricing of related party financial transactions. The work is to be completed by September 2015.

Explore additional BEPS action plans: