The paper present theoretical and experimental studies of the energy dissipation performance of a composite structure composed in a multilayer nano-composite damping coating applied on a tungsten carbide shim and placed beneath the cutting insert. The coated shim placed closed to the cutting zone is subjected to high compressive and shear stresses as well as high temperature. Therefore, apart from high damping capacity it requires high stiffness and high thermal resistance. The coated shim dissipates the high frequency oscillations produced at the tool-chip and tool-workpiece interfaces during the chip forming process. The use of coated shims demonstrates that the tool life is considerably extended, while the machined surface integrity is improved. The Reuss model of the composite structure composed of a phase with a stiff, low loss factor and a phase with high loss factor is used to calculate the optimal coating thickness that gives high loss factor combined with high stiffness. The synthesis process of the coating material using HiPIMS process is discussed. The physical characteristics of the coating and the machining performance are presented in the experimental section.