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Thin capitalisation refers to a financing structure where a company uses excessive debt rather than equity to reduce taxable income through interest deductions.
Thin capitalisation refers to a financing structure where a company uses excessive debt rather than equity to reduce taxable income through interest deductions.
Debt vs Equity
Debt vs Equity
Companies can be financed through a combination of debt and equity. Thin capitalisation occurs when a company relies excessively on debt financing instead of equity to reduce taxable income through interest deductions.
đź’ˇKey Takeways
Thin capitalisation is commonly used as a BEPS strategy, where multinational companies increase debt financing to claim higher interest deductions and reduce taxable profits in high-tax jurisdictions.
References: OECD BEPS Action 4 Report (2015); Buettner et al. (2012).
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