4.6 Rules limiting tax base erosion through financial instruments
| AUTHOR | |
|---|---|
| Jairo A. Godoy G. and Pablo Porporatto | |
| lectronic document | |
| Spanish and English | |
| CIAT | April 2025 |
Contents note:
The CIAT Executive Secretariat invites you to download and read chapter “4.6 Rules limiting tax base erosion through financial instruments” written by Jairo A. Godoy G. and Pablo Porporatto.
The section explores rules aimed at limiting tax base erosion through the use of financial instruments. It emphasizes how globalization and the increasing complexity of financial products—especially OTC derivatives and other opaque instruments—allow for practices that artificially reduce tax liabilities. Proposed measures include identifying the beneficial owner, applying the principle of economic substance over legal form, the Principal Purpose Test, anti-deferral rules, monitoring of income smoothing, thin capitalization limits, and restrictions based on indicators such as EBITDA. The section also highlights the importance of international information exchange and outlines regulatory experiences in countries like Argentina, Brazil, Chile, Colombia, Ecuador, Peru, and Mexico. These rules aim to strengthen the ability of tax administrations to detect and prevent abusive schemes, while adapting to global financial and technological developments.
This is the 40th section published within the framework of the “Manual on the Control of International Tax Planning” and is available in English and Spanish. The complete Manual consists of six sections made up of 42 chapters.