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What is the impact of BEPS on REITs?
First published in BNA Bloomberg Tax Planning International, July 2015
Real estate has become a global asset class, where investors from multiple jurisdictions come together to invest in multiple assets across multiple jurisdictions. Initially, real estate investments were not the focus of the BEPS Action Plan, which was focused on multinational enterprises.
Action 6 of the Action Plan, ‘‘prevent treaty abuse,’’ is perhaps the major area of concern for real estate investors and REIMs. This action is aimed at companies who use conduit companies and low-taxed foreign branches to artificially shift income. Companies operating across multiple jurisdictions will come under scrutiny due to their use of investment vehicles to collect money across different countries to invest in.
Action 13 on transfer pricing documentation may create new needs for country-by-country reporting and transfer pricing documentation which, at a very simple level, will increase the cost of operating crossborder investment programs.
Action 4, ‘‘limit base erosion via interest deductionsand other financial payments,’’ may change the economics of leverage, widely used to enhance returns. The primary aim of Action 4 is to reduce the amount of taxable profits shifted through intra-group interestbearing loans. However, it also countenances more broad-based interest limitations which could impact third-party interest charges too.
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