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Interest Charges

93. When only the real centre of management is established outside N.E.I., while the entire business of the foreign enterprise is carried on in this country, the total interest carried by the centre of management on behalf of the enterprise will be charged to the account of the profits taxable in this country. When, on the other hand, the foreign company has several branches, the interest will have to be divided among them. We take, for example, an English rubber company operating exclusively in Sumatra. One day it decides to open rubber estates in Liberia. For the financing of the latter, it is compelled to negotiate a loan. In such case the interest on the loan will not be charged against the East Indian profits. When, however, an import firm has branches in different countries, it will be pretty well impossible to assign loans to any particular branch, and the apportionment of the interest charged will be made according to the degree of importance of each branch in the business complex. As a rule, the turnover figure may be taken as a basis of apportionment.

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