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BEPS: Interest deductions and other financial payments

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Action 4 was one of the more keenly anticipated final reports, largely because of the sheer scope of companies affected by it. The way that the UK’s tax regime deals with interest is relatively generous. There is no formulaic thin capitalisation rule, the costs of funding equity investments are deductible, and deeply subordinated (and therefore high interest) shareholder debt is compatible with our transfer pricing rules. These were all within the sights of Action 4. The proposed best practice is for a combined fixed ratio rule and a group ratio rule; however, the practicalities are questionable.

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