The business federation SwissHoldings represents the interests of 61 Swiss based multinational enterprises from the manufacturing and service sectors (excluding the financial sector). SwissHoldings is pleased to provide comments on the BEPS Action 4 Discussion Draft (Interest Payments) (hereafter referred to as “the Draft”).

The choice between debt and equity is an important business decision, which is based on different considerations. In many circumstances, loans can be preferable to a contribution of equity for bona fide reasons. For instance, loans are more flexible than equity and generally carry a lower cost of capital than equity. Dividend distributions remain subject to significant limitations in terms of timing and amounts; loans cater better for potential fluctuations in the need for capital; less formalities are required for reductions or increases of loans compared to equity, resulting in less administrative costs for financing.

SwissHoldings believes that the starting point for Action 4 should be that interest and other costs, such as derivatives and insurance payments, are legitimate business costs and should therefore be deductible. Restrictions should be limited to abusive cases, i.e., to situations without a good commercial rationale. Contrary to the OECD SwissHoldings is convinced that intra-group loans are not per se aimed at base erosion and/or profit shifting. For instance, it is normal commercial practice to raise debt in the market through one legal entity that subsequently lends on to different legal entities in a group. The vast majority of businesses do not use interest payments for tax avoidance purposes. Arm’s length intra-group financing should therefore not be subject to stricter rules than external financing.

Efficient and flexible corporate financing is crucial to economic development and growth and should not be undermined. We urge the OECD to maintain tax deductibility for legitimate business costs, including financing costs, to focus on making existing legislation more fit-for-purpose, efficient and predictable and only to address situations where there is excessive debt in accordance with accepted business norms and the particular situation of a MNE.

Comments of SwissHoldings on the BEPS Action 4 Discussion Draft (Interest Payments) of 18 December 2014

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