Investor Presentaiton
Thin capitalisation
Thin capitalisation rules restrict the deductibility of interest
and other loan expenses where the borrower has insufficient
equity. The rules can be summarised as follows.
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Financial expenses (including interest) arising from loans
and credits received from related parties in excess of
four times the borrower's equity (six times for banks and
insurance companies) are tax non-deductible.
Interest on loans and credits received from unrelated
parties, or those secured by a related party, is fully
deductible on general principle, except for interest on
"back-to-back" loans (i.e. where a related party provides
a loan, credit or deposit to an unrelated party which then
provides the funds to the borrower), which is treated as
interest on related-party debt.
Where interest or other revenue is derived from the
borrower's profit, all financial expenses on the loans or
credits received are tax non-deductible.
Any upward adjustment of profit resulting from a transfer
pricing or thin capitalisation adjustment relating to a non-EU
or EEA resident counterparty may be treated as a dividend,
i.e. is subject to dividend withholding tax, as reduced by the
provisions of any applicable double taxation treaty
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