CPABC in Focus July/August 2016 - Page 37

midkhat/iStock/Thinkstock Impact of BEPS The 15 BEPS Actions address key areas that have challenged governments in taxing profits generated by multinational entities (MNEs) within their borders. Identified below are specific areas of heightened BEPS-related risk for the mining industry, as well as potential opportunities arising from the BEPS Actions. Financing Mining companies may find that intercompany financing is particularly challenged under the BEPS Project. In the BEPS Action 4 report, the OECD released guidelines on preventing BEPS by limiting the tax deductibility of interest payments. The report recommends that each country set a limit on the level of net deductions for an entity’s interest payments to a percentage of its earnings before interest, taxes, depreciation, and amortization.5 Any interest expenses beyond this limit would not be deductible for tax purposes and, as a result, could be subject to double taxation. Mining companies routinely lend money to their operating subsidiaries in foreign countries where the interest on the debt is deductible. In many cases, the interest paid by operating subsidiaries exceeds the deductibility limit set by the country in which they operate. Developing projects could be significantly affected by the provisions in Action 4 due to their lower earnings and need for significant funding. Mining companies need to pay close attention to the implementation of Action 4 in their operating jurisdictions, and