How are Islamic Financial Instruments treated under the General Interest Deduction Limitation Rules?
Should an Islamic Financial Instrument incorporate an element analogous to Interest, this component will be deemed economically similar to Interest and consequently subjected to the General Interest Deduction Limitation Rule. When assessing the presence of an Interest equivalent component within an Islamic Financial Instrument, it is imperative to apply a substance-over-form approach. The treatment of returns generated from Islamic Financial Instruments should be in accordance with the treatment of returns derived from equivalent conventional financial instruments as stipulated by the International Financial Reporting Standards (IFRS).
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