What is BEPS all about? 

“Base erosion and profit shifting”, but nowadays used to refer to an OECD project, supported by the G20, which aims to change international tax laws in a way that prevents BEPS.

The background: a perception that multi-nationals are manipulating international tax laws in a way which facilitates BEPS, and gives them an “unfair” advantage over domestic groups. And a feeling that international tax laws haven’t kept pace with the modern global economy.

The response: far-reaching proposals for reform across a wide breadth of topics, going to the fundamentals of corporate taxation. This is not just about the large US multinationals, like Amazon, Google and Starbucks, or digital businesses – the impact will be felt across all sectors.

Implications for Infrastructure

(A) Proposals to cap tax relief for interest, by reference to a fixed ratio of EBITDA, could have significant consequences for highly leveraged business models:

  • impact on returns from existing and future projects

  • risk of default under existing financings, and refinancing may be challenging where returns are impacted

  • modelling difficult when unknown external factors impacting EBITDA can impact on future interest deductibility and future law change proposed

The details of any specific legislative proposals will be important, in particular the scope of exemptions and reliefs, and the effect of rules designed to address the impact of volatility in EBITDA

(B) New double tax treaty abuse rules will be relevant to funding and holding structures, which rely on access to tax treaties to mitigate tax leakage on borrowings and profit repatriation. Such structures will be subject to increased scrutiny, and may be more difficult (and more costly) to implement successfully.

(C) Proposed “hybrid mismatch” rules may remove planning opportunities designed to take advantage of different tax characterisation in different countries of financial instruments and entities.


This has been talked about for a few years now, but it is likely that 2017 and 2018 will be years in which we see real change in tax laws. Groups and investors are now considering the impact of these rules on existing structures and future deals.