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13.2. Thin-capitalization and other Restrictions to Interest Deduction

Thin capitalization rules are applicable only to ‘Exempt-Controlled Resident Entity’. Accordingly, deduction related to interest expense is restricted to a debt-to-equity ratio of 7:3.

The tax laws define ‘Exempt-Controlled Resident Entity’ as a resident entity in which 25% or more of the underlying ownership is held by exempt entities such as approved retirement funds, charitable organizations, non-resident persons or associates of such entities or persons.