Thin-Cap Interest Limit

Apply caller-supplied EBITDA and fixed caps to net interest expense.

Description

An interest-limit scenario compares net interest with an EBITDA allowance and a fixed allowance.

An interest-limit scenario compares net interest with an EBITDA allowance and a fixed allowance. This implementation uses the larger of those two allowances as its deduction limit.^[1]

Apply caller-supplied EBITDA and fixed caps to net interest expense.

When to use Thin-Cap Interest Limit

Use this tool to apply caller-supplied EBITDA and fixed caps to net interest expense.

Choose the specific arithmetic or checklist scenario and establish its input amounts, dates, rates and criteria from the applicable records. Keep currencies, periods and jurisdictions consistent; review the tool-specific assumptions before interpreting the result.

How to use Thin-Cap Interest Limit and understand its results

Choose the specific arithmetic or checklist scenario and establish its input amounts, dates, rates and criteria from the applicable records. Keep currencies, periods and jurisdictions consistent; review the tool-specific assumptions before interpreting the result.
Enter netInterestExpense, taxEbitda, ebitdaLimitPercent, fixedCap using the field table and calculation rules, then run the tool.
Read ebitdaBasedLimit, deductibleInterest, disallowedInterest. The explanation below defines the units, signs, ordering and any flags or placeholder values.
If the tool reports an input issue, correct the values and run it again. Apply the stated assumptions when interpreting a successfully returned result.

Input field	Meaning	Value type; see rules below	Requirement
netInterestExpense	Net interest expense	number; minimum: 0	Required
taxEbitda	Tax EBITDA	number; minimum: 0	Required
ebitdaLimitPercent	Caller EBITDA limit (%)	number; minimum: 0	Required
fixedCap	Caller fixed cap	number; minimum: 0	Required

Enter nonnegative EBITDA, net interest, percentage and fixed cap. Calculate the EBITDA-based allowance, use the larger allowance or fixed cap to limit interest, and return the EBITDA-based allowance, deductible interest and remaining disallowed amount.

limit=max(EBITDA×limitPercent/100,fixedCap); deductible=min(netInterest,limit)

Units, indexing, boundary conditions and exceptional cases are defined in the calculation rules above.

Output field	Meaning	Value type
ebitdaBasedLimit	EBITDA-based limit	number; minimum: 0
deductibleInterest	Deductible interest	number; minimum: 0
disallowedInterest	Disallowed interest	number; minimum: 0

json

{
  "input": {
    "netInterestExpense": 500,
    "taxEbitda": 1000,
    "ebitdaLimitPercent": 30,
    "fixedCap": 100
  },
  "output": {
    "ebitdaBasedLimit": 300,
    "deductibleInterest": 300,
    "disallowedInterest": 200
  }
}

Limitations and assumptions

Despite the tool name, this does not test a debt-to-equity ratio. The fixed cap acts as an alternative minimum allowance here; legal ordering, carryforwards and exemptions are not implemented.

Numeric inputs must be finite. Follow the calculation-specific rules for overflow, underflow and exceptional cases. Missing required fields, extra fields, wrong value types and violations of the calculation rules are input errors.

Alternative or Complementary methods

Use Pillar Two Top-Up Tax: Estimate Pillar Two top-up tax from caller-supplied income, rates, and exclusion. For a complementary task, use Cost-Segregation Benefit: Compare first-period deductions and study cost using a caller-supplied marginal rate.

References

Thin-Cap Interest Limit — tool.io

Similar or alternative tools

Pillar Two Top-Up Tax
Estimate Pillar Two top-up tax from caller-supplied income, rates, and exclusion.
Cost-Segregation Benefit
Compare first-period deductions and study cost using a caller-supplied marginal rate.