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Thin Capitalization
Most countries have their own thin cap rules which set an acceptable debt/equity ratio for purposes of allowing deductions for interest expense, particularly interest incurred for acquisitions. The determination of the debt/equity rules is in part based on fair market value analyses of debt obligations or any balance sheet item relevant to the calculation. We can provide fair market determinations for purposes of planning the optimum debt/equity structuring.
Check-the-Box Elections
Check the box (CTB) is a special election permitted under U.S. tax law which generally is used to treat a legal entity as “pass-through” as opposed to “stand-alone” for tax purposes. The CTB election results in a deemed liquidation of the electing legal entity. In a liquidation, the stock of the legal entity is retired and the shareholders take over its assets and liabilities. The company is deemed to have sold its assets and liabilities for fair market value to the shareholders in return for their stock in the company. The shareholders are deemed to have sold their stock in the company in return for the fair market value of the assets and liabilities. Our professionals can provide the valuation needed to determine the tax consequences of the liquidation and to establish the tax bases and capital accounts of the new legal entity.
Worthless Stock Deductions
U.S. companies can take ordinary, as opposed to capital, losses for worthless stock held in foreign subsidiaries. The initial step in the determination of worthlessness is to prove that the fair market value of liabilities exceeds that of assets on a certain date. Off-balance sheet assets and liabilities related to cessation of business (e.g. severance, pension, environmental) are relevant to this determination. Our professionals can provide valuation analyses as a first step in documenting a Section 165(g)(3) worthless stock deduction.
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