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Limiting the Impact of Excessive Interest Deductions

Many governments are concerned about high levels of debt allocated to mines in their jurisdiction.

Companies can finance a mining investment through debt or equity. Interest payments on the debt are tax deductible, whereas dividends are not. Unless there are limitations on the deduction of interest, there is a risk that companies will allocate higher debt levels to the host country in order to pay less tax.

Our practice note, Limiting the Impact of Excessive Interest Deductions on Mining Revenue, helps policy-makers understand how mining companies legitimately use debt finance within a corporate group. It also explores how countries can best set limitations on the use of interest where there is demonstrable, aggressive profit shifting occurring. The practice note is also available in French.