Layered tax governance of multinational debt: Regulatory interaction under BEPS, ATAD and Pillar Two.

Abstract

Cross-border intra-group debt is governed by several legal regimes that may apply concurrently to the same payment. Transfer-pricing rules, anti-hybrid provisions, earnings-stripping limits, treaty-abuse tests and the Pillar Two minimum tax were developed in different institutional settings and were not designed to operate as an integrated system. This article conceptualises their cumulative application as a form of layered tax governance. Combining doctrinal analysis with institutional complexity and organisational information-processing theory, it traces a single intra-group loan through each filter and compares its implementation in the UK, Germany and India. The layers prove individually coherent but only partially aligned in their definitions, evidential standards, documentation requirements and relief mechanisms. Overlap is most pronounced among treaty-abuse, beneficial-ownership and substance-based tests, while recent German reforms show that layering can also arise within a single domestic system. The tax burden and the compliance burden must be distinguished: two rules may substitute in fiscal effect while remaining cumulative in the evidence they require. The resulting burden depends not only on the number of rules but also on their non-interoperability, firms’ internal tax-governance capabilities, and the administrative capacity of tax authorities. Six propositions are developed for empirical testing, with implications for boards, treasury and regulatory design.