In spring, the Growth Opportunities Act new tax laws on group financing issued. In mid-August, the Federal Ministry of Finance (BMF) published a draft Administrative instruction published.
Sometimes there are big question marks, sometimes there are a few positive aspects. We will briefly guide you through the most important points.
The classic case is a domestic borrower. If the tax authorities do not recognise the debt sustainability or the operational necessity of the loan, the interest expense may not be recognised for tax purposes.
The BMF clarifies that loans to finance a profit distribution are not generally unusual for third parties. Group companies with a start-up character can also generally receive outside capital. In addition, a loan is not considered to be at arm's length simply because follow-up financing is required.
The BMF is of the opinion that the stand-alone rating - i.e. the assessment of the probability of credit default of a group company - of a domestic borrower in a group of companies can be better than the group rating. The tax authorities are already vehemently advocating this view in many current tax audits. In the first step, the tax audit uses the rating resulting from a rating tool, for example based on the borrower's key financial figures (see also our June newsletter on estimating credit default probabilities). In a second step, it is compared with the group rating: If the stand-alone rating is better than the group rating, the former is used as a basis. If the stand-alone rating is worse than the group rating, the stand-alone rating is often raised across the board to the group rating.
This view is at odds with established advisory practice, which refers to guidance from Standard&Poor's (S&P). S&P makes it clear that group companies can at most enjoy the group rating unless they are particularly isolated in legal terms. The audit ignores this.
Ist das Stand-Alone-Rating schlechter als das Gruppenrating, kann laut S&P durch die strategische Relevanz – im Steuerjargon „Konzernrückhalt“ – das Rating verbessert werden. Sofern es sich um keine Kerngesellschaft handelt oder das Stand-Alone-Rating dem Gruppenrating entspricht, maximal nur bis zu einen Notch unter dem Gruppenrating.
Interestingly, the BMF is strongly orientated towards the S&P concept, which describes five rating categories within a group, and also mentions these categories and the criteria for them. However, it is not clear whether the capping of the group company's rating by the group rating applies or not.
There are many question marks here. There is considerable legal uncertainty. The industry is hoping for clarifications in the final version of the BMF letter.
The new tax laws generally apply from the financial year that began on 1 January 2024.
The new statutory rules will not apply to existing loans that expire this year and are not extended - in other words, only very limited "grandfathering" will apply. Grandfathering will not apply to cash pools and financing companies.
Our colleagues Marc Oliver Birmans and Svetlana Kuzmina of the Centre of Excellence for Financial Transactions of Global Transfer Pricing Services will be happy to assist you.
Those: KPMG Corporate Treasury News, Ausgabe 148, Oktober 2024
Authors:
Marc Oliver Birmans, Partner, Tax, Global Transfer Pricing Services
Dr. Finn Martensen, Senior Manager, Tax, Global Transfer Pricing Services
