THIN CAPITALISATION LEGISLATION A BACKGROUND PAPER …

1 THIN CAPITALISATION LEGISLATION A BACKGROUND PAPER FOR COUNTRY TAX ADMINISTRATIONS (Pilot version for comments) Initial draft - August 2012 2 THIN CAPITALISATION Introduction This PAPER , which has been prepared by the OECD Secretariat for training purposes, aims to assist country tax administrations that are considering revising their existing thin CAPITALISATION rules, or introducing thin CAPITALISATION rules for the first time. The PAPER aims to: describe what is meant by thin CAPITALISATION explain why many countries take measures to address thin CAPITALISATION in their tax rules describe the legislative approaches that countries frequently adopt to such rules address some of the issues that frequently arise in the context of thin CAPITALISATION regulations The PAPER acknowledges that countries adopt differing approaches to thin CAPITALISATION , and these different approaches are reflected in the model LEGISLATION included in this PAPER .

amount of interest it pays, the lower will be its taxable profit. For this reason, debt is often a more tax efficient method of finance than equity. Multinational groups are often able to structure their financing arrangements to maximise these benefits. Not only are they able to establish a tax-efficient mixture of debt and equity in

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