Page 41 - UUBO Deal Academy 2020 - Materials

Concerns for PE Funds:

Action 4 – Interest Deductibility

▪ Action 4 seeks to limit base erosion caused by excessive interest deductions
and expenses incurred in the production of exempt or deferred income, by

limiting interest deductions.
▪ OECD recommends the introduction of a fixed ratio rule which limits an entity’s

net deductions for interest and payments economically equivalent to interest to
a percentage of its EBITDA – the recommended ratio is 10% and 30%.

▪ Implementation of Action 4 has commenced in some jurisdictions
• UK – 30%

• Nigeria – 30% of EBITDA (SCH.7 FA 2020)
▪ Interest deductibility rules will impact how PE Funds finance acquisitions of

portfolio companies with debt - debt pushdowns into target is no longer viable
tax planning

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