First, it is clear that the interest rate on intercompany loans must be calculated on the length of the arm. For example, a 2012 decision on a loan outside a linked company established in Luxembourg stated a reasonable interest rate “… the interest rate that would have been agreed for the loan over the same period and in the same place by independent Italian companies in Luxembourg-based companies.” The assessment should take into account the following: a year later, in 2016, the Supreme Court saw a slightly different scenario. It was asked to comment on interest-free foreign payments to related companies, which were justified as advances for future capital increases. In this case, the Court upheld the re-qualification of the transaction carried out by the Italian tax authorities and stressed that it was economic content. The Court stated that the fact that the newly qualified loan was interest-free was not in itself sufficient to exclude the application of the arm length principle (Decision N. 7493/15.04.2016). The best way to do this is for the Accounts Office to verify the loan agreement after the project has been concluded by the law firm so that the Intercompany loan agreement meets all your requirements. The situation seems even more vague with respect to zero-rate intercompany loans. In 2015, the Supreme Court considered an interest-free outbound loan which, according to the Italian tax authorities, would have the effect of properly applying the principle of arm length to an interest charge. In practical terms, the Italian credit company had granted a cross-border loan without the application of interest rates – which is allowed from a civil law point of view. The Italian tax authorities considered that the loan should have benefited from an interest bonus and attempted to recover the corresponding amounts. However, the Supreme Court held that the principle of arm length was not applicable in this case and indicated that the interest-free nature of the loan could be considered an indicator of non-abuse (Decision N.
15005/17.07.2015). In practice, the Italian tax authorities continue to offer the Italian courts several possibilities to apply and clarify the aforementioned legislation. Intercompany loans to Italian subsidiaries are frequently investigated and many cases are brought to court, even as a last resort. Nevertheless, there seems to be room for clarification. In addition, excessive interest payments to a foreign-linked business, borrowers, can be recovered. This was confirmed by the Supreme Court in deciding to obtain a loan from a German parent company (Decision N. 22010/25.09.2013). The Court highlighted the sufficient evidence presented by the tax authorities for the calculation of interest rates on the lender`s market (Germany) on the basis of the official bulletins of the Deutsche Bundesbank. It explained the abusive purpose of the transaction and the violation of Italian transfer pricing legislation.
1. What positions should be added to the loan contract 2? What is a reasonable interest rate? 3. Does the loan contract have to be in Japanese? From a legal point of view, the interest rate of an intercompany loan between an Italian company and its foreign-linked company must in principle be determined taking into account interest rates on the lender`s market (Circular N. 32/1980 of the Ministry of Finance). It is stipulated that the “lender`s market” is considered “the one in which the funds were actually recovered: a market that does not always correspond to the lender`s country of residence (…) “lender.” While the international debate on the most appropriate rules is ongoing, intercompany loans have attracted national attention, with the introduction of special laws and targeted investigations.