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How multinational enterprises use related-party debt to create interest deductions and reduce taxable income.
How multinational enterprises use related-party debt to create interest deductions and reduce taxable income.
Parent company grants a large related-party loan to its subsidiary.
The subsidiary pays interest on the related-party loan.
Interest payments are claimed as deductible expenses.
Taxable income is reduced while profits are transferred through interest payments.
OECD (2015). Limiting Base Erosion Involving Interest Deductions and Other Financial Payments (Action 4 Final Report).
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