In the case of intragroup loans, it is still important that they are granted with interest rates that correspond to market conditions. Granting a loan with a lower interest rate (failure to observe transfer prices) may result in income tax being levied on the interest not received on the loan.
If a subsidiary grants a loan to a foreign parent company, there may be the risk that income tax will be levied on the total amount of the loan. Subjecting the total loan amount to income tax on the basis of § 502 of the Income Tax Act that will enter into force in 2018 is primarily justified if the details of the transaction suggest that it may be a case of concealed distribution of profits.
Lending for an unreasonably long period, an unreasonable repayment schedule, the repeated extension of the repayment term or repeatedly increasing the loan amount may suggest that the loan was granted for the purposes of concealed distribution of profit. Irrational use of the borrowed money may also create doubts. In order to motivate the repayment of the loan, the new version contains a provision pursuant to which the tax authority may demand proof of ability and intent to repay a loan granted for a period longer than 48 months.
§ 565 of the Income Tax Act also requires taxable persons to declare the loans they have granted once a quarter and this must be done by all commercial undertakings that have granted loans to related persons.
The obligation of proof and declaration of loans will apply to loans granted as of July 2017 and to loans in the case of which the loan amount has been increased, the repayment deadline has been extended or other important terms and conditions have been amended since this date.
The first opportunity to declare loans granted will be on 10 February 2018.
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