Limiting Base Erosion

S. 3501. Introduction

The title of Action 4 in the G20/OECD Base Erosion and Profit Shifting (BEPS) Project is “Limiting Base Erosion Involving Interest Deductions and Other Financial Payments”, one of the “key pressure areas” to be included in the OECD’s 2013 Action Plan on BEPS, which was launched based on the G20’s mandate to the OECD in 2012. It was a response to the concerns that profit shifting harmfully erodes tax bases, resulting in substantially decreasing tax revenues for governments and implying a continuous “race to the bottom”.

The first substantive publication based on the Action Plan 2013 was the Action 4 Discussion Draft released on 18 December 2014. The Discussion Draft expressed the view that domestic general interest limitations had failed to counteract BEPS, presuming that countries acting autonomously aim to protect their attractiveness to international business and to enable domestic corporate groups to compete globally. Thus, the competition-based character of the current international tax regime characterized by lack of interaction of unilateral rules had made it easier for multinational companies to capitalize on loopholes and to systematically shift profits to low...