Under Article 12 of the Corporate Tax Law, the portion of borrowings from related persons exceeding three times the equity at the start of the financial year is deemed thin capital. Expenses such as interest and exchange differences on this portion are not deductible in determining corporate income and may be treated as distributed dividends.
Planning intra-group financing structures from a tax perspective is therefore important.
Source: Corporate Tax Law No. 5520 Art. 12
Related terms
Transfer pricingThe pricing of goods, services and financing transactions between related persons; tax legislation requires these prices to be at arm's length.Related partyA person or entity that has a relationship of control, joint control or significant influence with the reporting entity.Non-deductible expensesExpenses recorded in calculating commercial profit that cannot be deducted in determining taxable corporate income under tax legislation.Advance taxTax paid in advance during the year by income and corporate taxpayers, in quarterly periods, on current-period earnings.Arm's length principleThe principle that transactions between related persons should be carried out at the prices and on the terms that would apply between independent parties with no such relationship.Capital gainGains of individuals from disposing of certain assets and rights that are subject to income tax.
Last updated: October 22, 2026 · This definition is for general information only.