The aim is to also stop companies artificially loading debt in no-tax or low-tax jurisdictions to reduce their tax bills.

It comes as the government backs down on a pledge to impose tougher tax "anti-avoidance" rules on multinationals that shift billions of dollars of profits between Australia and their foreign entities.

In a discussion draft released this month, the OECD stressed the need to target interest payments, which it said were "one of the most simple of the profit-shifting techniques available in international tax planning".

"The fluidity ... of money makes it a relatively simple exercise to adjust the mix of debt and equity in a controlled entity," it said.

It asked member countries to consider whether interest deductions should be limited and whether a new rule should apply to the level of debt or interest expense claimed by companies.

Corporations are pushing back on the plans, with KPMG tax partner Grant Wardell-Johnson saying the proposals threaten Australian corporations' ability to fund projects.

"The OECD has recommended against an arm's-length debt test. If adopted in Australia, this may be problematic for some infrastructure projects which rely on high gearing to reduce the cost of funds.

He said putting a cap on interest deductions would also "significantly impact the allocation of debt" for multinationals and "raise the cost of funds for some Australian projects", making the projects less viable.

Deloitte tax partner David Watkins said most countries, including Australia, already had adopted a range of rules designed to limit deductible interest payments.

But the OECD was looking for a multilateral approach. He said one idea put forward by the OECD was whether the interest deductions in a particular country should be limited by reference to the interest expense of the worldwide group.

The Australian member of a global group would be allocated an "interest cap". This cap would be worked out by reference to the assets or earnings of the Australian member as a proportion of the global group.

"For example, if the global group has total interest expense of $10 million, the members of a group can collectively have interest expense of no more than $10 million," Mr Watkins said.

"If the global interest cap approach is adopted ... Australian companies may find that a significant amount of their interest expense is disallowed," Mr Watkins said.

This would increase the tax costs for the Australian operations. "Further, for Australian headquartered groups with overseas activities, the disallowance of interest expense in foreign countries will increase the tax costs of the group and adversely impact the financial statements of the group."

Mr Watkins said Australian companies had already faced "significant action" on this front. "Thin capitalisation rules have recently been strengthened, consideration has been given to whether specific rules are needed for interest expense associated with offshore investments and other aspects of cross-border financing arrangements are currently before the courts," he said.

But as revealed by Fairfax Media, Treasurer Joe Hockey has backed away from a pledge to introduce a targeted "anti-avoidance provision" to tighten generous deductions available under the Income Tax Assessment Act 1997.

The deductions have been used most ruthlessly by foreign-based companies that load debt into their Australia entities and then claim deductions from the taxman on the interest paid on those borrowings.

The Gillard government announced the abolition of deductions under section 25-90 of the Income Tax Assessment Act 1997 as part of a package to combat tax minimisation by global corporations, at a projected benefit to the taxpayer of $600 million.

In November last year, Mr Hockey and the then assistant treasurer Arthur Sinodinos announced they would not legislate Labor's package, saying it would impose "unreasonable compliance costs on Australian companies" with overseas subsidiaries.

Instead, Mr Hockey – who has trumpeted a global tax crackdown on multinationals through the G20 process – and Mr Sinodinos pledged in November to "introduce a targeted anti-avoidance provision after detailed consultation with stakeholders".

But in this month's Mid-Year Economic and Fiscal Outlook, the government said it would not proceed with a targeted anti-avoidance provision "to address certain conduit arrangements involving foreign multinational enterprises".

Consultation on the OECD plan will happen in February, and it is expected to hand down a final decision by September.