• De minimis monetary threshold to remove low risk entities
    • Optional
    • Based on net interest expense of local group (both group interest and third party interest)
  • Fixed ratio rule
    • Allows an entity to deduct net interest expense (both group and third party interest) up to a benchmark net interest/EBITDA ratio
    • Relevant factors help a country set its benchmark ratio within a corridor of 10%-30% • As a minimum this should apply to entities in multinational groups §
  • Group ratio rule
    • Allows an entity to deduct net interest expense (both group and third party interest) up to its group’s net interest/EBITDA ratio where this is higher than the benchmark fixed ratio
    • Option for a country to apply an uplift to a group’s net third party interest expense of up to 10%
    • Option for a country to apply a different group ratio rule or no group ratio rule
  • Carry forward of disallowed interest /unused interest capacity and/or carry back of disallowed interest
    • Optional
  • Targeted rules to support general interest limitation rules and address specific risks
  • Specific rules to address issues raised by the banking and insurance sectors
  • Rules should at least apply to entities part of multinational group
  • The rules may apply to entities part of domestic groups
    • In order to tackle base erosion
    • For other policy goals (e.g. competition issues; reduce bias in favour of funding; EU law)
  • Country to apply rules to address BEPS risks posed by standalone entities
    • E.g. large holding structures involving trusts/partnerships
  • Countries may apply a de minimis threshold

Fixed ratio rules

Step 1: Calculating the measure of earnings

  • EBITDA (taxable income + net interest expense + depreciation and amortization)

Step 2: Applying statutory benchmark fixed ratio

  • To be set by countries within a "corridor" (10%-30%)

Step 3: Comparing maximum deductible net interest expense with actual net interest expense

  • Excess is disallowed

Group ratio rule

Stage 1: Determine the group’s net third party interest/EBITDA ratio

  • Net third party interest expense / Group EBITDA = Group ratio
  • Based on information obtained from the group’s consolidated financial statements
  • Countries may apply an uplift of up to 10% to the group's net third party interest expense to prevent double taxation

Stage 2: Applying the group’s ratio to an entity’s EBITDA

  • Group ratio x Entity EBITDA = Limit on interest deductions
  • Based on tax-EBITDA (taxable profit after adding back interest expense,
  • depreciation and amortization

Adressing impact of loss-making entities

  • Group has positive EBITDA, including loss making entities: upper limit equal to net interest expense of group
  • Group has negative EBITDA, including profit making entities: profit making entity to receive interest capacity (lower of actual expenses and group expenses)
  • Alternative: exclude loss-making entities from calculation


  • Impact of volatility and double taxation could be reduced through:
  • Use of average figures (e.g. current year and 2 previous years)
  • Carry forward and carry back of disallowed interest
  • The earnings-based worldwide group ratio rule can be replaced by different group ratio rules, such as the "equity escape" rule (which compares an entity’s level of equity and assets to those held by its group) currently in place in some countries
  • The report also recommends that the approach be supported by targeted rules to prevent its circumvention, for example by artificially reducing the level of net interest expense It also recommends that countries consider introducing rules to tackle specific BEPS risks not addressed by the recommended approach, such as where an entity without net interest expense shelters interest income
  • There is a need to develop suitable and specific rules that address BEPS risks in the banking and insurance sectors

 Impact for the Netherlands

  • There are already many detailed provisions in Netherlands tax law that limit the deductibility of interest in specific BEPS types of situations; BEPS Action 4 should not have an immediate impact on these existing rules.
  • Chances are that the Netherlands will introduce a fixed ratio rule in accordance with the recommendations in the Report on Action 4 (also taking into account some pressure already built up among certain members of Netherlands parliament).
  • Also in this respect it will be relevant whether the EU will introduce an anti-BEPS Directive and whether this Directive will force the EU Member States to introduce rules similar to the rules recommended by the OECD.
  • The question is whether the Netherlands will abolish or amend (part of) its current set of rules.