Release:
2020, Vol. 6. № 1 (21)About the authors:
Natalia V. Pokrovskaya, Cand. Sci. (Econ.), Associate Professor, Department of Credit Theory and Financial Management, St. Petersburg State University; n.pokrovskaia@spbu.ru, ORCID: 0000-0002-8314-9470Abstract:
The movement of capital within an international group of companies allows not only optimizing business processes, it may also serve to reduce tax liabilities. To effectively counter this phenomenon, international initiatives are being created to coordinate the actions of countries.
The aim of this study is to characterize the experience of applying the thin capitalization rules and earnings stripping rules when implementing an intragroup loan. This paper describes the tools to counter the replacement of equity with borrowed capital for tax purposes in the OECD recommendations, as well as corporate taxation practices in 151 countries in 2019-2020.
The rules for regulating intra-group financing for tax purposes have been introduced by a predominant number of countries, while thin capitalization rules are more common than the limit on interest. National rules for thin capitalization and earnings stripping vary by a number of parameters, including by scope and tax implications. The greatest differences are observed in the key fixed ratio of borrowed and own capital and the nature of restrictions on the interest.
The authors’ hypothesis about a high degree of convergence of national rules for regulating thin capitalization and earnings stripping rules with the recommendations of the OECD has not been fully confirmed. However, the trends of the second half of the 2010s confirmed the second hypothesis that in developed countries there is a gradual transition from thin capitalization rules to earnings stripping rules in accordance with BEPS actions.
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