e_dipn13a_Interest Expense_s16(2ABC)

As for borrowings from associated corporations the

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Unformatted text preview: of an issue of debentures or instruments as described above. As for borrowings from associated corporations, the deduction of interest paid by the borrowing corporation is restricted to the amount of interest paid by the associated corporation to the holders of its debentures or instruments. 19. Deduction of interest under this condition is subject to the new restriction under section 16(2C). Limitation of Deduction of Interest 20. The 2004 Amendment Ordinance lays down restrictions on interest deduction under certain circumstances. Deduction of interest on loans borrowed from non-financial institutions (condition (c) loans), borrowed from financial institutions (condition (d) loans) or borrowed for specified purposes (condition (e) loans) will all be subject to two additional tests under section 16(2A) and (2B) – Section 16(2A) (i) the loan is not secured by a deposit or loan made by the borrower or a person associated with the borrower with or to the lender, a financial institution, an overseas financial institution or an associate of any of these parties, where the interest generated by such deposit or loan is not taxable (i.e. the secured-loan test); and 9 Section 16(2B) (ii) there is no arrangement in place such that the interest payment is ultimately paid back to the borrower or to a person connected with the borrower (i.e. the interest flow-back test). 21. As regards the deduction of interest on debentures or debt instruments, it will be subject to the same interest flow-back test (section 16(2C) as that mentioned in paragraph 20(ii) above). Nevertheless, failure to comply with these tests does not necessarily disqualify the interest expense in its entirety from a deduction claim. In the case of a partial failure, the restriction on interest deduction will only be confined to the portion of the interest relating to the portion of loan, debenture or debt instruments that failed the tests and the time in which the failure persisted. 22. Bankers may have the right to utilise balances in deposit accounts of a customer to set off the outstanding loan and interest payable by t...
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This note was uploaded on 03/11/2010 for the course BBA B415 taught by Professor Mrli during the Spring '10 term at Academy of Art University.

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