Tax Treatment Of Revenue Based Financing

The tax treatment of the distributions return of capital vs.

Tax treatment of revenue based financing. Debt an rbf debit deal is treated for tax purposes just like any other debt. The tax implication of revenue based financing depend on the structure of the specific deal. Revenue based financing rbf is non dilutive funding based on your business s recurring revenue. This paper emphasizes the impact of taxes on revenue based payments and the importance of the various approaches of tax authorities to execute such compensations.

Revenue based financing is a way that firms can raise capital by pledging a percentage of future ongoing revenues in exchange for money invested. A portion of revenues will be paid to investors at. A revenue based finance rbf investment provides capital to a business by selling an ongoing percentage of a company s future revenues to the investor. To distinguish it from social security or social health insurance and in which access to publicly financed services is at least formally open to all citizens.

It defines tax based systems as those in which more than half of public expenditure is financed through revenues other than earmarked payroll taxes i e. Generally it is assumed that payments of instrument that provide for revenue based compensation are not tax deductible because these instruments are normally qualified as equity. Income is challenging and requires professional guidance if not noted elsewhere. A recent internal revenue service irs chief counsel advice cca memorandum cca 201537022 clarified the tax treatment of tax increment financing tif reimbursements received by a real estate developer in connection with the construction of infrastructure improvements.

The payments fluctuate with the borrower s financial performance going up when revenue is strong and down when it is lower. Revenue based financing what is revenue based financing. In exchange for funding as your business generates future revenue a percentage of cash receipts usually between 3 8 are remitted monthly.