We expect the government to press ahead with its commitment to a hard implementation of the OECD’s BEPS Actions, and in particular Action 4, which restricts the tax deductibility of interest costs for corporates.
While BEPS might have been something of a pet project for his predecessor, Philip Hammond has kept his cards close to his chest, although it would be a surprise if he risked appearing soft on tax avoidance by changing tack on BEPS overall.
We expect to see the final version of new legislation, to form part of Finance Bill 2017, that will restrict the amount of interest that can be deducted for corporate tax purposes - the thinking being that debt facilitates base erosion and profit shifting far too easily. The basic rule, expected to take effect from 1 April 2017, introduces a mechanical restriction of 30 percent of EBITDA.
Over the last 12 months, whilst the measures have been under consultation, certain sectors, especially the property industry, have lobbied against the proposals, in particular the grandfathering of existing arrangements. While we would not expect the government to backtrack significantly, there is a chance the start date could be pushed back a year or two. Given the vast numbers of proposed measures that Mr Hammond inherited, this might be one thing he could defer without too much controversy.
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