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12.2.1. Main Rules

The deduction of interest expenses is limited by two sets of rules, namely a standard thin-capitalization rule and a maximum interest rate rule. Under the first rule, interest remunerating debt in excess of a debt to equity ratio of 4:1 is not deductible. Further, interest paid in excess of twice the credit and discount rates issued by the central bank at the beginning of each year is not deductible. Note that the law provides that interest payments between related parties must be at arm’s length and must be supported by appropriate documentation. It is unclear whether or not the maximum interest rate rule above operates as a safe haven for transfer pricing purposes.