A consultation draft (practice note) to help policymakers and tax authorities of developing countries address potential profit shifting from mining activities through excessive interest deductions was published on 18 April 2018 by the OECD and the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF). Notwithstanding the limited scope of this report, it offers a glimpse of the OECD's evolving stance on the transfer pricing aspects around interest limitation rules.
The filing of the draft practice note is a joint effort with the goal of "Limited the Impact of Excessive Interest Deductions on Mining Revenues" and should only be considered a "broad consensus between the OECD and IGF" which "should not be regarded as the officially endorsed view of either organisation or of their member countries". However, it is of interest from a transfer pricing perspective in more than one respect, including:
- Groups active in extractive industries have previously been used as a test case for the OECD, and
- The practice note represents the first written references by the OECD to more detailed concepts on transfer pricing applied to intercompany financing transactions, including the requirement to demonstrate the commercial rationality of the transaction.
Read more in our Insights article from Transfer Pricing.