Kirill Chernovol, Researcher at the Gaidar Institute’s International Best Practices Analysis Department, commented for Forbes on the initiative to potentially limit the deduction of interest expenses on loans and borrowings when calculating corporate income tax.
There is currently a discussion in Russia about the possibility of introducing restrictions on the deduction of interest expenses on loans and borrowings for corporate income tax purposes, similar to the rules in effect in a number of foreign countries. This refers to a mechanism whereby a company can deduct interest as an expense only up to a certain percentage of its EBITDA—earnings before interest, taxes, depreciation, and amortization.
As Kirill Chernovol explained, the very idea of such restrictions is in line with international practice and is aimed primarily at preventing the erosion of the tax base by companies that artificially increase their debt burden to reduce taxes.
“Limiting interest expenses to a range of 10–30% of EBITDA is considered an international standard and is recommended by the OECD. This model makes it possible to distinguish cases of aggressive tax planning from the normal business activities of companies that use debt financing for investments, acquisitions, or business development. At the same time, it is important to maintain a minimum threshold for interest expenses that can be deducted without restrictions, so as not to create an additional burden for bona fide companies,” noted Kirill Chernovol.
According to him, the short-term effect of such restrictions on the budget could be positive. According to some estimates, additional revenue could amount to hundreds of billions of rubles. However, at the same time, risks will increase for companies with high debt burdens, especially in an environment of high interest rates.
an environment of high interest rates. Kirill Chernovol emphasized that companies in retail, manufacturing, transportation, real estate, and other capital-intensive sectors—which actively rely on borrowed funds to finance their operations—may be the most vulnerable to such changes. According to the speaker, when developing new rules, it is necessary to take into account the current state of the economy and prevent the situation from worsening for companies that are already servicing expensive loans.