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A new approach to the taxation of interest payments

14 november 2008

Comparable study between Germany and The Netherlands

During the last couple of years, a significant greater attention is paid to tax deductions on interest payments both by companies operating in a national as well as by companies operating in an international environment. The attention has even been increased by the activities of private equity partners and hedge funds in the market. If the debtor is located in a high taxed country, while the recipient is based in a lower tax jurisdiction, debt creation will normally result in a general decrease of the effective tax liability for the group. Various national tax authorities have started to fearfor tax
erosion by the increased utilisation of interest deductions.

The Dutch corporate income tax legislation does contain an intricate set of rules regarding the deductibility of interest payments. In addition, the new group interest box facility which was proposed in 2007 is still not approved by the European Committee. As a result, there is still room for tax planning in case of acquisitions or cross-border restructurings. The ball is now in the court of the national legislator.

Three Dutch Academics have recently re-launched the idea to de-fiscalize intragroup interest payments by ignoring the paid and received interest between group companies. In 2008, the German government has already introduced new limitation rules which are deviating from the usual thin-capitalization approach that is used by many other countries. Also, Germany introduced specific transfer pricing rules which are meant to ensure the right for Germany to levy income tax if activities are moved outside Germany.

Tour D'Horizon Europe is organising a seminar to provide you with an update on all these remarkable developments.

During two presentations by reknown German tax practitioners, the new German tax rules within the field of limitation of interest deduction and the new transfer-pricing provision regarding transfers of activities out of Germany will be highlighted. Then Netherlands tax practictioners will first present the recently published Dutch law proposal, and then possible incompatibilities with EU law and other international law principles will be explored. Finally, a panel discussion will compare the new Dutch law proposal with the situation in Germany and other countries. We believe that this exploration of new current and possible developments is absolutely necessary for those working on international tax planning.