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Thin Capitalization Rule vs Interest Barrier

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To be able to do business, companies have to be equipped with capital by their shareholders. Usually, this capital is granted to them as equity. Nevertheless, it is also reasonable for shareholders to provide debt to the company. In any case, companies have to onsider the differences in taxation regarding equity and debt financing. That is why for internationally operating roups of companies the differing legal frameworks between countries are crucial factors for making decisions in corporate financing (Obser 2005: 1ff), especially because interest expenditure due to debt financing is usually tax-deductible in almost every country and thus considerably reduces a company's tax base (Jacobs 2007, 909). Hence, internationally operating companies should consider the various differing corporate tax rates between countries in their financing strategies in order to minimize their total tax base. (author's abstract) ; Series: Discussion Papers SFB International Tax Coordination

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Andreas Göritzer

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