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How to Manage Thin Capitalization From a Tax Perspective

 
Gain a better understanding of the multinational thin capitalization rules obligations. When multinational organizations (MNOs) create an entity overseas they will fund the enterprise via a mixture of debt and equity. The optimal way to finance an entity is typically debt because the new foreign subsidiary will get a tax deduction for the interest and the payment will allow the parent to immediately get their money back via interest charges. This is often in the form of an intercompany loan. To prevent companies from overleveraging subsidiaries or strip out the untaxed earnings, taxing jurisdictions create thin capitalization limits (i.e. debt to equity) of 2-1, 3-1, etc. The debt limit is imposed to prevent interest from being a disguised dividend (post-tax) remuneration to the parent company.
This topic will cover not only what is necessary to comply with the multinational thin capitalization rules but also how it is possible optimize a MNO’s structure from a capitalization standpoint in light of the thin capitalization rules. We will cover the background of thin capitalization, how it is possible to resolve thin capitalization issues and walk through a number of illustrative examples.

Faculty

John P. Garcia, CPA, M.B.A.

John P. Garcia, CPA, M.B.A.

Corporate Tax Advisors

Agenda

Faculty

John P. Garcia, CPA, M.B.A.

John P. Garcia, CPA, M.B.A.

Corporate Tax Advisors

  • More than 25 years of experience providing services to major multinational corporations such as Billabong, Nixon, Targus, Marriott, Dial, Henkel, The University of Phoenix, and CPE, Inc
  • Conducts regular seminars and workshops on the following: Tax Aspects of the CARES Act, Accounting for Income Taxes – ASC 740/FAS 109; International Taxation; State and Local Taxation; and Uncertain Tax Positions – FIN 48 and Transfer Pricing
  • Wrote the SRR Journal, Fall 2016, How to Properly Capitalize Subsidiaries Without Getting Ensnared in the Earnings-Stripping Rules; California CPA magazine, June 2013, An Integrated Database Solution to Global Withholding Compliance; and Thomson Reuters, Corporate Taxation, December 2009, Green Corporate Tax Incentives-Wind Technologies
  • Member of Arizona Society of CPAs and AICPA
  • M.B.A. degree in international business; B.S. degree in accounting and finance, University of Maryland College Park
  • Can be contacted at 877-728-1400 or [email protected]

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