Law draft L 28 Regarding Corporation Tax Act § 11 C: The Coherence of the Rules of Limiting Interest Deductions Between the Recommendations of OECD and the Danish Law Draft L 28

Abstract

The increased globalization gives rise to several more taxpayers expanding their business by adding more subsidiaries in a group, and by expanding their businesses to international markets. This increases the opportunity and risk for unintentional international tax planning, which is putting a strain on the international tax rules to be adjusted and developed according to the current market conditions. This is furthermore substantiated by the risks of not having a consistent approach in the international tax regulations in order to fight these risks. The risk is especially increasing concerning money, as it is easy mobile and fungible due to the digitization’s increasing impact into the global economy. This means that multinational groups have an easy opportunity to move interests and debt internally between group companies. Base Erosion and Profit Shifting (BEPS) has been a public focus area since G20 and The Organization for Economic Co-operation and Development (OECD) put this on the international agenda by launching the BEPS-project in February 2013. This project resulted in publications of 15 Actions in 2015 which recommend the best practice to address these risks. This master thesis is taking its starting point in the recommendations in Limiting Base Erosion Involving Interest Deductions and Other Financial Payments Action 4. Based on the recommendations from OECD, the Council of the European Union adopted the Anti-Tax Avoidance Directive (ATAD) in July 20161 . This directive lays down a set of rules, by setting a minimum level of protection and aims to achieve the essential minimum degree of coordination within the Union. It is therefore up to the Member States to implement the directive in their national legislation, and to assess the national BEPS risks and adapt a more strict legislation to address the identified risks. This master thesis describes and analysis ATAD Article 4 Interest limitation rule, and makes a comparison of the adopted rules to the recommendations set out in BEPS Action 4. Denmark is a member state of the European Union and is therefore obligated to implement the rules set out in ATAD before 1 January 2019 at the latest. The Danish Parliament has of October 3rd 2018 published a law draft (L 28), which among other changes to the Danish tax laws, contains a proposal to a new phasing in Corporation Tax Act § 11 C incorporating ATAD article 4. This master thesis describes and analysis the law proposal in Corporation Tax Act § 11 C, and makes a comparison of the adopted rules to ATAD, and for the non-regulated areas this will be compared to the recommendations set out in BEPS Action 4. This thesis analysis shows that ATAD article 4 is in overall agreement with the recommendations set out in BEPS Action 4. There has been identified minor deviations from the recommendation for best practice, which primarily can be addressed to a desire to minimize administrative costs for the tax payers covered by the rules of interest deduction limitations. The analysis also shows that the Danish law draft (L 28) meets the minimum set of rules set out in ATAD article 4, but that the Danish Parliament has chosen to implement rules that cover more than the minimum required, to address the risks of BEPS using interests and debt.