Do you need to to determine arm’s length interest rates for intercompany loans in Germany?
Then the key question is: should you apply the Comparable Uncontrolled Price (CUP) method or the Cost-Plus method?
Two landmark rulings by the German Federal Fiscal Court (Bundesfinanzhof) in 2021 help to answer this question: the CUP method is the preferred approach for determining market-based interest rates on intercompany loans.
In this article, we present these rulings and derive key principles for intercompany and shareholder loans.
In many companies, shareholder loans play an important role in raising capital. With such loans, shareholders lend money to the company to bridge financial bottlenecks or finance investments.
Arm's length interest rates are essential for setting fair financing terms between affiliated companies, especially in cross-border transactions and in private debt. The Comparable Uncontrolled Price (CUP) method is the preferred approach for determining such rates.
Peter Schmitz
May 27, 2023
4 min read
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