About the indicator

When a country allows resident companies to deduct from their tax base the interest payments they have made to affiliates in other countries, this encourages intra-company debt financing. The more debt a company assumes from an affiliate, the more interest it will pay, reducing its tax bill where it is resident. This often results in multinational corporations issuing itself loans and paying high interest rates back to itself purely to shrink profits and underpay tax. This indicator assesses if the country restricts or disallows the deduction of interest payments paid to non-resident group affiliates from the corporate income tax base. It assesses if a fixed ratio rule for debt-to-equity is used to limit the deduction of interest payments.