Government launches consultation on tax avoidance proposals

The government has launched a consultation on tax avoidance policies related to interest deductions that could have significant consequences for real estate.

The proposals were released by the the Organisation for Economic Co-operation and Development (OECD) as part of a series of recommendations earlier this month designed to prevent companies from artificially moving profits between countries to lower their tax bill.

Currently, all interest payments are subtracted from profits and the resulting figure is then taxed, but under the proposals, the interest that companies would be able to deduct from taxable profits would be capped between 10% and 30% of EBITDA.

The aim is to stop multinational companies from ‘tax shopping’ between countries, but real estate companies, which tend to employ higher levels of debt because of the capital-intensive nature of the industry, could be faced with significantly higher tax bills.

The government has asked for responses to the consultation to be posted by 14 January next year. The consultation requests feedback on a range of points, including the proposed corridor of 10% – 30% and what potential exemptions should be given.

The consultation also stated that “if new rules are introduced in the UK it is unlikely this would be before 1 April 2017”‎.