Interest free loan to or from Danish companies(Taxwatch (Tax news in english))
12-07-2010 12:55
Af
Ida Gert Jensen
As a consequence of the finansial crisis many debtors are not able to pay interest or to pay down their debts. As a main rule the creditor is not exempt from taxation of the income from the corresponding interest – even though the interest is not paid. In respect of loan between consolidated companies and loan from stockholders (individuals) to companies this often give rise to considerations to make the loan free of interest - maybe just for a period. However this can be risky.
Interest free loan is not seen as a normal market condition, thus The Danish tax authorities will normally fix an estimated interest. However there are exeptions, and it is also of importance if the loan is between consolidated companies or if one of the involved companies is a foreign company.
The rules can be illustrated like this:
| Danish company |
Interest free loan is ok, but only if the companies are consolidated or if debtor is clearly insolvent. (1) |
Interest free loan is ok, but only if the companies are consolidated or if debtor is clearly insolvent. (1) |
| Foreign company |
Interest free loan is ok (2) |
- |
| Danish individual |
Interest free loan is ok, but only if debtor is clearly insolvent. |
Interest free loan is ok, but only if debtor is clearly insolvent.
|
| Foreign individual |
Interest free loan is ok (2) |
- |
Ad 1.
If the companies are consolidated for tax purposes, taxation of a fixed interest for the creditor will correspond to an interest deduction for the debtor. The lack of paying interest will be treated as a grant which is taxfree for debtor and non-deductible for the creditor. Thus there will be no change in the consolidated income.
The requirements to document the insolvens are quite strict. A negative equity will not be sufficient.
Ad 2.
The Danish tax authorities will normally not give the Danish company a fixed interest deduction, unless this company is covered by the rules of limited interest deduction and the corresponding grant is not tax free.
Questions regarding the above can be addressed to Ida Gert Jensen at igj@bdo.dk
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