Cross-border loans: new approach on interest deduction and tax issues

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Consulenza tributaria e tax compliance

Circular letter No. 6 / E of 30 March 2016 provides for an opportunity to analyze the evolution of the Italian tax authority’s approach on interest deduction arising from cross-border loans. Under the new approach, the interest deduction will be challenged by re-characterizing the loan agreement into an equity injection; however, this approach does not seem compliant with the new Transfer Pricing Guidelines as amended by BEPS Actions 8-10.