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2019 Welcomes New Finnish Interest Deduction Limitations

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2019 Welcomes New Finnish Interest Deduction Limitations

Changes to the Finnish interest barrier regime have come into effect in 2019. They have been expected since 2016, when the E.U. released its Anti-Tax Avoidance Directive (“A.T.A.D.”), which sets forth the minimum standards for interest deduction restrictions within the E.U. The limitations affect E.B.I.T.D.A.-based rules (i.e., addressing earnings before interest, tax, depreciation, and amortization) adopted in 2014, which include the specific interest barrier rule affecting the deductibility of intra-group interest payments. Antti Lehtimaja and Sanna Lindqvist of Krogerus Ltd., Helsinki, explain the key elements of the new restrictions, including some considerations regarding the impact on Finnish taxpayers and investments in Finland.

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High-Speed Tax Reform: The U.K. Diverted Profits Tax & Restrictions on Corporate Interest Deductions

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High-Speed Tax Reform: The U.K. Diverted Profits Tax & Restrictions on Corporate Interest Deductions

Among the most notable changes made to U.K. corporate tax over the past 24 months are the introduction of the diverted profits tax (“D.P.T.”) and the reduction of tax relief for corporate interest payments.  D.P.T. is aimed at multinationals operating in the U.K. that try to avoid maintaining a permanent establishment in order to escape U.K. corporate tax.  D.P.T. is imposed at the rate of 25% and treaty relief is not available.  The reduction in relief for corporate interest payments implements the recommendations of B.E.P.S. Action 4.  Eloise Walker and Penny Simmons of Pinsent Masons, London, explain the working of these provisions.

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

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

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. 

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§385 Regulations Adopted with Helpful Changes, but Significant Impact Remains

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§385 Regulations Adopted with Helpful Changes, but Significant Impact Remains

On October 13, 2016, the Treasury Department released final and temporary regulations under Code §385 relating to the tax classification of debt.  The new rules were proposed initially in April and were followed by a torrent of comments from Congress, business organizations, and professional groups.  In the final portion of his trilogy on debt-equity regulations, Philip R. Hirschfeld explains the helpful provisions that appear in the final regulations and cautions that not all controversial proposals were modified.

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Uproar Over Proposed §385 Regulations: Will Treasury Delay Adoption?

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Earlier this year, the U.S. Treasury Department issued comprehensive and detailed proposed regulations under Code §385 that address whether a debt instrument will be treated as true debt for U.S. income tax purposes or re-characterized, in whole or in part, as equity.  Not surprisingly, significant pushback has been encountered from members of Congress, professional bodies, and affected taxpayers.  It seems that the one-size-fits-all approach contains many defects.  Philip R. Hirschfeld and Stanley C. Ruchelman explain.

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Related-Party Debt: Proposed Code §385 Regulations Raise Major New Hurdles

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In a follow-up piece on newly proposed anti-inversion regulations, Phillip R. Hirschfeld offers a detailed analysis of new debt equity regulations.  Mind-boggling complexity is proposed for rules in an area of the tax law that lay dormant for almost 40 years.

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Inversions Under Siege: New Treasury Regulations Issued

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On April 4, 2016, the Treasury Department issued a third round of new rules under Code §7874 aimed at halting the wave of inversions. Already, at least one inversion transaction, involving pharmaceutical giants Pfizer and Allergan, has been scuttled. Beyond that, the new rules resuscitate regulations issued under Code §385. Philip R. Hirschfeld explains.

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Artificial Loan Restructurings

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The I.R.S. has discovered that related taxpayers have been renegotiating existing intercompany loans to allow operating companies within the group to pay a higher rate of interest to a related party benefitting from favorable tax attributes without violating Code §482 principles. Andrew P. Mitchel and Sheryl Shah explain how the I.R.S. is taking aim at this new approach to self-help.

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