Thin Capitalization: Financial Innovation Versus Tax Rules

DOI

10.2991/icaat-16.2016.5How to use a DOI?

Keywords

Financing, thin capitalization, financial innovation, tax regulation

Abstract

The needs of companies in capital cheapening lead to the emergence of new financing patterns. One of such patterns based on the substitution of equity capital by the debt capital is hidden or thin capitalization. When used within a framework of a group of companies the cheapening of financing takes place by reducing the overall tax burden. However, this mechanism conflicts with fiscal interests of the state, forcing it to develop new tax regulations. On the other hand, any additional regulation leads to the feedback from financial market. In case of thin capitalization, it is manifested in the emergence of new hybrid forms of financing and new financial instruments to avoid or mitigate the impact of fiscal restraints. This article is dedicated to the research of thin capitalization mechanisms, the causes of its appearance and use. The state's interest in regulating the thin capitalization is reasoned, the main trends and rules of its regulation are identified. Separately some new financial instruments that appeared as response to tax regulation are explored.

Copyright

© 2016, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Ivan Darushin
AU  - Natalia S. Voronova
PY  - 2016/12
DA  - 2016/12
TI  - Thin Capitalization: Financial Innovation Versus Tax Rules
BT  - Proceedings of the 5th International Conference on Accounting, Auditing, and Taxation (ICAAT 2016)
PB  - Atlantis Press
SP  - 45
EP  - 52
SN  - 2352-5428
UR  - https://doi.org/10.2991/icaat-16.2016.5
DO  - 10.2991/icaat-16.2016.5
ID  - Darushin2016/12
ER  -