Thin capitalization and its tax incidence
DOI:
https://doi.org/10.17533/udea.rc.n83a07Keywords:
Thin capitalization, BEPS, financial expenses, EBITDA, intra-groupAbstract
This article examines thin capitalization as a tax avoidance practice. Where an international comparative analysis was conducted based on thin capitalization regulation, which identifies the rules that regulate the limits of the deductibility of financial expenses. One of these rules corresponds to the inclusion of a fixed ratio with respect to earnings before interest, taxes, depreciation, and amortization (EBITDA), whose application reveals four cases covered by Ecuador’s tax law. In the first case, the entire financial expense is deductible. In the second case, there are excess financial expenses, so it will only be deductible up to the maximum limit allowed in the tax regulations (20% of EBITDA). In the third and fourth cases, all financial expenses are considered as non-deductible expenses for income tax purposes.
Downloads
References
Ault, H. J., y Arnold, B. J. (2002). Comparative International Taxation: A Study of The United States, United Kingdom, Sweden, and West Germany. Kluwer Law International.
Blouin, J., Huizinga, H., Laeven, L., y Nicodème, G., (2013). Thin Capitalization Rules and Multinational Firm Capital Structure [working paper No. 1323]. Oxford University Centre for Business Taxation. https://EconPapers.repec.org/RePEc:btx:wpaper:1323
Buettner, T., Overesch, M, Schreiber, U., y Wamser, G. (2012). The Impact of Thin-Capitalization Rules on The Capital Structure of Multinational Firms. Journal of Public Economics, 96 (11), 930-938. https://doi.org/10.1016/j.jpubeco.2012.06.008
Buslei, H., y Simmler, M. (2012). The Impact of Introducing an Interest Barrier: Evidence from the German Corporation Tax Reform 2008 [DIW Discussion Papers, No. 1215]. Deutsches Institut für Wirtschaftsforschung (DIW). http://hdl.handle.net/10419/61391
Centro Interamericano de Administraciones Tributarias (CIAT). (2021). Base de Datos BEPS actualizada entre los meses de enero a mayo de 2021. Acción No. 04 Limitar la erosión de la base imponible por vía de deducciones en el interés y otros pagos financieros. https://www.ciat.org/base-de-datos-monitoreo-beps/
Clausing, K. A. (2003). Tax-motivated Transfer Pricing and U.S. Intrafirm Trade Prices. Journal of Accounting and Economics, 35(2), 199-227. http://doi.org/10.1016/S0047-2727(02)00015-4
Egger, P., Eggert, W., Keuschnigg, C., y Winner, H. (2010). Corporate Taxation, Debt Financing and Foreign-Plant Ownership. European Economic Review, 54 (1), 96-107. https://doi.org/10.1016/j.euroecorev.2009.06.007
Fernández-González, M. (2016). La deducción de los gastos financieros en el Impuesto sobre Sociedades: un análisis de la normativa anti-elusión española [tesis doctoral, Universidad de Cantabria]. https://repositorio.unican.es/xmlui/bitstream/handle/10902/8438/Tesis%20MFGT.pdf?sequence
Fuest, C., Hebous, S., y Riedel, N. (2011). International Debt Shifting and Multinational Firms in Developing Economies. Economics Letters, 113 (2), 135-138. https://doi.org/10.1016/j.econlet.2011.06.012
Graham, J. R. (1996). Debt and the Marginal Tax Rate. Journal of Financial Economics, 41 (1), 41-73. https://doi.org/10.1016/0304-405X(95)00857-B
Haufler, A., y Runkel, M. (2012). Firms’ Financial Choices and Thin Capitalization Rules under Corporate Tax Competition. European Economic Review, 56 (6), 1087-1103. https://doi.org/10.1016/j.euroecorev.2012.03.005
Hanlon, M., y Heitzman, S. (2010). A Review of Tax Research. Journal of Accounting and Economics, 50(2-3), 127-178. http://dx.doi.org/10.1016/j.jacceco.2010.09.002
Hines Jr, J. R., y Rice, E. M. (1994). Fiscal paradise: Foreign tax havens and American business. The Quarterly Journal of Economics, 109(1), 149-182. https://doi.org/10.2307/2118431
Huizinga, H., Laeven, L., y Nicodème, G, (2008). Capital Structure and International Debt Shifting. Journal of Financial Economics, 88 (1), 80-118. https://doi.org/10.1016/j.jfineco.2007.05.006
Mills, Lillian F. and Mills, Lillian F. and Nutter, Sarah E. and Schwab, Casey M., The Effect of Political Sensitivity and Bargaining Power on Taxes: Evidence from Federal Contractors (October 11, 2011). McCombs Research Paper Series No. ACC-04-10, Available at SSRN: https://ssrn.com/abstract=1621861 or http://dx.doi.org/10.2139/ssrn.1621861
Organización para la Cooperación y el Desarrollo Económicos (OCDE). (2017). Limiting Base Erosion Involving Interest Deductions and Other Financial Payments, Action 4 - 2016 Update. OCDE. http://dx.doi.org/10.1787/9789264268333-en
Organización para la Cooperación y el Desarrollo Económicos (OCDE). (2021). Action 4 Limitation on Interest Deductions. https://www.oecd.org/tax/beps/beps-actions/action4/
Ruf, M., y Schindler, D. (2015). Debt Shifting and Thin-Capitalization Rules – German Experience and Alternative Approaches. Nordic Tax Journal, 2015 (1), 17-33. https://doi.org/10.1515/ntaxj-2015-0002
Schindler, D., Møen, J., Schjelderup, G., y Tropina, J. (2013). International Debt Shifting: Do Multinationals Shift Internal or External Debt? (conferencia). VfS Annual Conference 2013: Competition Policy and Regulation in a Global Economic Order. German Economic Association, Duesseldorf. https://ideas.repec.org/p/zbw/vfsc13/79749.html
Taylor, G., y Richardson, G. (2013). The Determinants of Thinly Capitalized Tax Avoidance Structures: Evidence from Australian Firms. Journal of International Accounting, Auditing and Taxation, 22 (1), 12-25. https://doi.org/10.1016/j.intaccaudtax.2013.02.005
Weichenrieder, A., y Windischbauer, H. (2008). Thin-Capitalization Rules and Company Responses Experience from German Legislation [working paper No. 2456]. CESifo. https://www.cesifo.org/DocDL/cesifo1_wp2456.pdf
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Contaduría Universidad de Antioquia
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Author’s copyright of the articles is transferred to the University of Antioquia to have abstracts and full texts available in databases that disseminate each issue’s contents. However, the authors may disseminate their work published in the Journal through their personal pages and institutional repositories.
