Intercompany loan interest rate addressed in Austria
April 28, 2009
The Austrian Ministry of Finance discussed the appropriate interest rate when a group financing entity is located in a foreign low tax country in its annual tax meeting, meaning potential changes for taxpayers.
The findings of the meeting were published in an administrative decree which does not have a force of law; however, in practice it is binding for the Austrian tax inspectors in case of a tax audit.
One of the topics covered in the document are intercompany loan transactions and the appropriate interest rate when a group financing entity is located in a foreign low tax country.
PricewaterhouseCoopers provides an English analysis of the decree and state that according to the Ministry of Finance, intercompany loans are not readily comparable with bank loans due to the differences between intercompany lenders and financing institutions.
Based on this, the comparable uncontrolled price method (the credit interest rate of the borrower on the market) is only applicable for determining intercompany interest rates if accurate adjustments are made to eliminate the effect of the differences and achieve comparability.
The Ministry's view is that intercompany interest rates paid by Austrian borrowers should lie in a range between:
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