The Recommendation of Safe Haven Interest Rates in the BEPS Context
The Recommendation of Safe Haven Interest Rates in the BEPS Context

Author(s): Veronika Solilova, Danuše Nerudova, Hana Bohušová, Patrik Svoboda
Subject(s): Supranational / Global Economy, Law on Economics, Financial Markets, Fiscal Politics / Budgeting
Published by: Masarykova univerzita nakladatelství
Keywords: loans; safe harbours; arm’s length principle; Base Erosion and Profit Shifting project; thin capitalization rules;
Summary/Abstract: Intercompany financial transactions are subjected to scrutiny by tax authorities as they represent very popular tax planning instrument with results of a significant reduction of the group´s effective tax rate. Tax authorities have limited the use of intercompany debt or the tax-deductibility of interest by the arm’s length principle, thin capitalization rules or/and safe harbour for taxpayers. Moreover, the recent work of the European Union, OECD and G20 members as regards the BEPS project is also scrutinized with a focus on the elimination of profit shifting through intra-group debt financing. The aim of the paper is to recommend transfer pricing approaches for intra-group loans in EU, based on the analysis of experiences from the USA and recommendations of the BEPS project and the proposal of the EU Anti-Tax Avoidance Directive. We recommend to introducing safe haven rates for different compounding periods and amount of loan denominated in EUR altogether with the application of thin capitalization rules in the form of EBITDA ratio with the threshold of 30% or within a corridor of 10% to 30%. Based on it, the transfer pricing simplified measurements for loan can be ensured.

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