The Impact of Anti-Thin Capitalization Rules on Capital Structure

• Main Authors: Chiou-Fen Tsai, 蔡秋芬
• Other Authors: Cheng-Hwai Liou
• Format: Others
• Language: zh-TW
• Published: 2015
• Online Access: http://ndltd.ncl.edu.tw/handle/ej5vr7

碩士 === 國立臺中科技大學 === 企業管理系碩士班 === 103 === Taiwan released the amended Article 43-2 of the Income Tax Act on the 26th of January, 2011 with Anti-Thin Capitalization Rules added. The rules indicate that from 2011, if the debt and equity financing ratio of corporations and its direct or indirect affiliates exceeds 3, excess interest expenditure incurred shall not be listed as expense or loss. The intension of this amendment is to prevent the erosion of Taiwan’s tax base from thin capitalization. This research explored the impact on Taiwan listed corporations’ debt-to-equity ratio and financing channels since the implementation of Anti-Thin Capitalization Rules on 2011. The empirical study result indicated that before the implementation of the Anti-Thin Capitalization Rules, corporations had the debt-raising tax benefit by deducting debt-raising interest expenditure with calculating taxable income. The more debt corporations raise, the more tax benefit they attain. This has affected shareholders’ interest and eroded our country’s tax base. However, after the practice of the Anti-Thin Capitalization Rules from 2011, if corporations exceed their debt raising quotas, interest expenditures shall not be deductible from taxable income. The empirical study showed that debt-to-equity ratio has dropped to a lower percentage since the implantation of the Rules. As to corporations with higher debt-to-equity ratio, their financing channels has also changed to decline the debt ratio.