Publications

Investors planning M&A transactions in any jurisdiction must consider each country's tax rules on the deductibility of finance costs on acquisition debt in light of recent moves by some governments to restrict this tax relief severely.

Variations in each jurisdiction's approach to this tax relief, such as the subtle differences in thin capitalisation rules, and the recent trend of caps on the amount of interest that can be deducted, may influence the way M&A transactions are structured and, in some cases, may affect the capital structure of companies.

In M&A, the availability of tax deductions for finance costs on acquisition debt plays a crucial role in deal economics and has, until now, been considered to be the international norm.

But this tax deduction has come under attack during the past few years and some governments have decided to limit this tax relief severely in their jurisdictions.

Limiting these tax deductions may have important repercussions. Governments need to be aware of the delicate balance between revenue raising and the risks of stifling inward investment by potentially undermining the economic viability of these types of investments.

Investors considering M&A transactions should be aware of the complex rules on tax relief for finance costs on acquisition debt in various jurisdictions and they should also consider the likelihood of any future changes to the law.

Download Full Report