INTRODUCTION
The limitation of interest deductibility to approximately 30% of
E.B.I.T.D.A. (earnings before interest, tax, depreciation, and
amortization) introduced in amended Code §163(j) has focused
the attention of U.S. corporations and their lenders on a new
constraint.
For companies with sales less than $25 million that borrow from
a foreign parent, the body of case law in the style of
Mixon and Laidlaw has remained the standard
against which interest deductibility is evaluated by the I.R.S.
Large subsidiaries of foreign parents that do not qualify for the
Code §246 gross sales exemption of $25 million are accustomed
to (i) proving their capacity to carry and service debt and (ii)
demonstrating that the rate of interest and other terms attaching
to a cross-border loan are arm's length under Treas. Reg.
§1.482-2, the concepts of Code §385 regulations, and
applicable case law. These companies are also subject to the 30%
E.B.I.T.D.A. limitation.
