Most tax regimes permit companies to offset the interest paid on debt against taxable profit. Which of the following is the key outcome for companies?

Question

Quizplus · Accepted Answer

The key outcome for companies is a tax saving which reduces the effective cost of debt capital. By offsetting the interest paid on debt against taxable profit, companies can reduce their tax liability and thus effectively reduce the cost of borrowing. This makes debt financing more attractive compared to equity financing which cannot be offset against taxable profit.

Most Tax Regimes Permit Companies to Offset the Interest Paid