Code §163(J) – Ignoring U.S. Thin Capitalization Rules May Leave Tax Advisors Thinly Prepared for Audits

Volume 4 No 4    |    Read Article

By Beate Erwin and Kenneth Lobo

B.E.P.S. Action 4 focuses on the need to address base erosion and profit shifting using deductible payments, such as interest, that can give rise to double nontaxation in inbound and outbound investment scenarios. The U.S. addressed this problem many years ago with Code §163(j). In light of recent I.R.S. guidance providing a step-by-step plan to assist auditors when analyzing interest payments, non-U.S. practitioners should be aware of the thin capitalization debt rules when planning for multinational structures. Kenneth Lobo and Beate Erwin explain how the provision works in general and in several illustrative fact patterns.    See more →