𝐈𝐍𝐓𝐄𝐑𝐄𝐒𝐓-𝐅𝐑𝐄𝐄 𝐈𝐂 𝐋𝐎𝐀𝐍𝐒 (𝐈): 𝐓𝐇𝐄 𝐓𝐑𝐀𝐍𝐒𝐅𝐄𝐑 𝐏𝐑𝐈𝐂𝐈𝐍𝐆 𝐒𝐓𝐀𝐍𝐃𝐏𝐎𝐈𝐍𝐓 𝐀𝐂𝐂𝐎𝐑𝐃𝐈𝐍𝐆 𝐓𝐎 𝐈𝐓𝐀𝐋𝐈𝐀𝐍 𝐂𝐀𝐒𝐄 𝐋𝐀𝐖
Intercompany financial transactions are increasingly conducted by multinational groups to manage and plan the financial needs of their subsidiaries. From a business perspective, providing an interest-free loan by a resident company to a related party may be a legitimate decision that could arise from reasons unrelated to tax planning considerations.
Based on the provisions of the OECD TP Guidelines, financial transactions that can be characterized as loans shall be evaluated according to the arm’s length principle (ALP). The Guidelines list a number of characteristics that may be relevant in determining whether a loan can actually be considered as such, including the 𝐨𝐛𝐥𝐢𝐠𝐚𝐭𝐢𝐨𝐧 𝐭𝐨 𝐩𝐚𝐲 𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭. This implies the determination of the arm’s length interest rate following the identification of comparable transactions.
𝐈𝐭𝐚𝐥𝐲: 𝐭𝐡𝐞 𝐬𝐭𝐚𝐧𝐝𝐩𝐨𝐢𝐧𝐭 𝐛𝐚𝐬𝐞𝐝 𝐨𝐧 𝐜𝐚𝐬𝐞 𝐥𝐚𝐰
In recent years, case law in particular has dealt with this subject.
𝑺𝒖𝒑𝒓𝒆𝒎𝒆 𝑪𝒐𝒖𝒓𝒕 (𝑪𝒐𝒓𝒕𝒆 𝒅𝒊 𝑪𝒂𝒔𝒔𝒂𝒛𝒊𝒐𝒏𝒆)
As background, the Supreme Court noted that non-interest bearing intercompany loans could be evaluated by Italian Tax Authorities under TP rules, even without any income or cost flow.
Interestingly, the Supreme Court has referred in several judgments to the concept of “𝐜𝐨𝐦𝐦𝐞𝐫𝐜𝐢𝐚𝐥 𝐫𝐞𝐚𝐬𝐨𝐧𝐬” (based on the well-known 𝑯𝒐𝒓𝒏𝒃𝒂𝒄𝒉-𝑩𝒂𝒖𝒎𝒂𝒓𝒌𝒕, 📂 case C-382/16), that may explain any deviations from the ALP. While there is recognition of this concept, it is not clear what it should consist of (quantitative/qualitative reasons?).
‼️ It is worth noting that, in its judgment no. 3223 of 8 February 2025, the Supreme Court ruled on the burden of proof in case of non-interest-bearing intra-group loans: in this respect, for Italian TP purposes, the burden of proving the commercial reasons, related to the role assumed by the parent company in supporting its subsidiaries, remains with the taxpayer.
𝑳𝒐𝒘𝒆𝒓 𝑪𝒐𝒖𝒓𝒕𝒔
In lack of Supreme Court guidance on "commercial reasons", a recent ruling (📂 1633/4/2024) by the Lombardy Tax Court listed seven reasons justifying non-interest-bearing loans: the parent company's aim to support its subsidiary for future results, the loan's indefinite duration, increasing credit balances, recurring losses, the borrowers' lack of creditworthiness, the group's financial instability, and broader financial agreements involving independent parties.
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