On 22 October 2015, the government launched a consultation in light of the OECD’s recommendations as part of the Base Erosion and Profit Shifting (BEPS) project (for more on this, see below).
The OECD’s recommendations include that an entity’s net interest deductions should be directly linked to its taxable income from its economic activities. Broadly, the OECD suggestion is that interest deductions should be limited to a fixed ratio of the entity’s profit (10% to 30%), based on EBITDA.
Although the UK government is generally supportive of the OECD’s recommendations, the tone of the consultation is one of opinion gathering. It does appear likely, however, that some form of ‘fixed ratio’ rule will be introduced in the UK which would have implications as to the level of interest deductibility for highly leveraged taxpayers.
Any further judgment as to the scope of these likely changes will need to await the results of the consultation (which closed on 14 January 2016).
The consultation can be found here.