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Common financial indicators used to identify excessive debt financing and potential thin capitalisation risk.
Common financial indicators used to identify excessive debt financing and potential thin capitalisation risk.
A significantly higher level of debt compared to equity may indicate excessive reliance on debt financing.
Large interest payments relative to earnings may indicate earnings stripping through related-party debt.
Consistently low taxable income despite strong business activity may suggest profit shifting through interest deductions.
Loans between related companies are commonly examined in thin capitalisation assessments.
References: OECD BEPS Action 4 Report (2015); Buettner et al. (2012).
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