The new thin cap rules elevate the importance of what is (or isn’t) a debt deduction

There will likely be limited time for consultation prior to the introduction of the new rules, and accordingly any change to what is a debt deduction (and the calculation of net interest expense) will need to be examined closely as part of the law design process, writes Julian Humphrey.

The balance sheet approach used by the current thin capitalisation rules only requires taxpayers to concern themselves with what is or isn’t a debt deduction when calculating the amount of a denial. Debt deductions are not relevant to the question of whether a taxpayer will or will not satisfy the safe harbour rules. However, this will change with the adoption of the Fixed Ratio Rule (or EBITDA approach) from 1 July 2023. The Organisation for Economic Cooperation and Development (OECD) BEP...

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Authors: Julian Humphrey

Published Date: 06 December 2022