FINANCE: Plans to restrict the tax deductibility of debt for real estate investors could curtail investment, the British Property Federation has warned.
An OECD review of tax avoidance, currently out for consultation, includes a proposal to introduce a fixed ratio rule that could effectively cap the amount of debt interest on which tax can be deducted.
The principle is already used in a number of countries, but OECD proposals seek to tighten the cap from an average of 30% to just 10%.
The BPF claims that the short time frame in which the OECD has had to carry out its review could mean that proposals are not as well targeted as they should be and may end up applying to everyday commercial transactions and causing collateral damage.
It said the real estate industry’s capital intensive nature and considerable use of debt finance would lead to it being particularly affected by the proposals.
Director of policy (finance) Ion Fletcher said: “Tackling tax avoidance is important, and we understand that it has to be made a priority.
“We are concerned, however, that the OECD is forsaking valuable thinking time, resulting in blunt polices that capture innocent commercial transactions. We need them to be properly targeted so that
they do not discourage development.”
The BPF believes that the cap will reduce the amount of debt capital the industry can deploy, lessening investment in the built environment.
