Blick Rothenberg partner Paul Smith shares his thoughts on what the Chancellor might, should and should not do at the upcoming Budget.
The likely introduction of a restriction on the deductibility of interest by companies is a big issue for UK based multinationals. The Organisation for Economic Co-operation and Development (OECD) has recommended that tax laws restrict the deductibility of interest to an amount to 10%, 20% or 30% of taxable EBITDA (Earnings before interest, taxes, depreciation and amortization). To date the UK has imposed no such restriction and the ability to claim a UK tax deduction for interest in the UK is a competitive advantage, helping to attract and retain multinational group headquarters in the UK.
What the Chancellor might do:
What the Chancellor should do:
- Be a trailblazer and introduce this new restriction on interest deductions now.
What the Chancellor should not do:
- Nothing until other countries have declared their intensions – we should not be a trailblazer here.
- Delay the introduction of any changes until the last opportunity.
- When a change is finally required then introduce the minimum restriction required (i.e. 30%).
- At the same time as any new restriction is introduced, he should abolish the current worldwide debt cap rules – as we surely do not need multiple rules to restrict the tax deduction for the same amount of interest.
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- Keep the worldwide debt cap rules as well as introducing this new restriction on interest deductions for companies.