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Deducting Interest Paid by Multinational Corporations: Section 163(j), 263(a)(3), Thin Capitalization Rules, OECD

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, November 28, 2023

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This webinar will discuss the U.S. limitations on interest deductions paid by multinational companies, thin capitalization restrictions imposed in other countries, and the OECD's recommendations for interest limitation rules. Our panel of international tax veterans will review Sections 163(j) and 267(a)(3) for U.S. restrictions, analyze similar limitations overseas, and provide suggestions for lowering the overall tax burden of international taxpayers with related party debt.

Description

Multinational corporations have historically structured loans with related companies in low-tax countries, creating large interest deductions that lower domestic taxes paid in high-tax rate countries, more or less converting equity into debt. Many countries, including the U.S., impose restrictions on these tax avoidance transactions and have enacted legislation restricting interest deductions.

Some countries have enacted earnings stripping or thin-capitalization rules to limit international debt shifting. Following OECD recommendations, Australia recently implemented an earnings-based test to restrict interest deductions to 30 percent of EBITDA effective July 1, 2023. In Europe, most countries have thin-capitalization rules in place using either earnings stripping or safe harbor rules to limit interest deductions.

In the U.S., Section 163(j) limits interest deductions to 30 percent of "adjusted taxable income." At the same time, 267(a)(3) requires MNCs to use the cash method of accounting for foreign intercompany debt deductions regardless of the method of accounting employed by the company. Tax practitioners working with overseas businesses must grasp the complexities of international debt deductions.

Listen as our panel of foreign tax experts analyzes the latest developments for deducting international interest payments.

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Outline

  1. Introduction: deducting interest overseas
  2. U.S. rules
    1. 267(a)(3)
    2. 163(j)
    3. Other restrictions
  3. Update on non-U.S. and OECD developments
  4. Other considerations

Benefits

The panel will cover these and other critical issues:

  • How 163(j) impacts interest deductions for MNCs
  • The impact of 263(a)(3) on interest expense between related foreign taxpayers
  • OECD recommendations for interest limitation rules
  • Suggestions for structuring international related party debt

Faculty

Bordia, Surbhi
Surbhi Bordia
Partner
Armanino

Ms. Bordia has over 10 years of public accounting experience. She addresses complex tax issues that impact...  |  Read More

Skinner, William
William R. Skinner
Partner
Fenwick & West

Mr. Skinner focuses his practice on U.S. international taxation, with a particular emphasis on tax planning and...  |  Read More

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