Deductibility
Short definition
Deductibility is whether an expense (especially interest and FX) can be taken off the corporate tax base. It is the legal precondition of the shield; if no cash tax arises, the economic shield is still zero.
Detailed explanation
Disallowances, thin-cap, hidden distribution and some finance-expense caps cut the deduction. The same cash coupon can shield in one slice and not in another.
Covenants and banks talking “after tax” assume the deducted slice. The CFO puts the tax-base slice into WACC, not the full coupon.
Why it matters for the CFO
High rates plus a cap make debt dearer than equity; the shield story ends.
How to read it
The deduction can be clawed back on audit. Transfer pricing and intra-group finance are the most fragile slice.
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.