Loans agreed between private individuals do not have to bear interest. Although the parties to the loan have the option of contractually agreeing on an interest rate, they are not obliged to do so. However, loans in commercial transactions, which are agreed e.g. between companies and related parties, must bear interest, whereby certain interest rates must be adhered to.
If loans are agreed between related parties, it is doubtful that the interest rates are set in line with the market due to the related party relationship. Consequently, corresponding loan relationships are meticulously investigated by the tax authorities. Loans between related parties must pass the so-called third-party comparison. The loan must be granted between independent third parties.
The Federal Tax Administration, therefore, publishes the recognized interest rates for loans between related parties every year. These can be used as a reference, so that no disadvantages can arise
In the case of loans from a shareholder to the company, the maximum interest rate of the Federal Tax Administration may not be exceeded. If this regulation is not complied with, this leads to a profit offset, and the translated interest is qualified as a hidden profit distribution. Profit distributions are subject to withholding tax and, in turn, to income or profit tax for the unit holder.
The reverse is also true if a company extends a loan to a shareholder. If an interest rate that is too low agreed upon in this loan, this leads to a profit offset at the company, which in turn constitutes a hidden profit distribution.
Consequently, loan relationships between related parties should be continuously reviewed so that third-party comparison can be ensured. In this way, undesirable tax consequences and the resulting expenses can be eliminated.
