Interest Deductions in a Multijurisdictional World

40 Pages Posted: 9 May 2015

See all articles by Mihir A. Desai

Mihir A. Desai

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Dhammika Dharmapala

University of Chicago Law School

Multiple version iconThere are 2 versions of this paper

Date Written: May 6, 2015

Abstract

This paper proposes and evaluates alternative methods for addressing the tax treatment of interest expenses in a multijurisdictional setting. The differential deductibility of debt entailed by various current tax law provisions leads to potential distortions in the patterns of asset ownership across MNCs and various proposed solutions have significant limitations. We suggest alternative regimes – a worldwide debt cap (WDC) and a net financing deduction (NFD) – to address the ownership distortions that we highlight along with other well-established problems of income-shifting through debt. These alternative regimes are extensions to a multinational setting of two general approaches to the neutral treatment of interest expenses – the CBIT (comprehensive business income tax) and ACC (allowance for corporate capital). While these regimes provide solutions to ownership distortions and to problems of “base erosion and profit shifting,” they have the potential disadvantage of restricting other policy parameters.

Suggested Citation

Desai, Mihir A. and Dharmapala, Dhammika, Interest Deductions in a Multijurisdictional World (May 6, 2015). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 725. Available at SSRN: https://ssrn.com/abstract=2603470 or http://dx.doi.org/10.2139/ssrn.2603470

Mihir A. Desai

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Dhammika Dharmapala (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
206
Abstract Views
1,364
rank
119,363
PlumX Metrics