June 03, 2020

Bloomberg Tax Quotes Friedemann Thomma on Intercompany Loans During the COVID-19 Pandemic

1 min

On June 3, 2020, Friedemann Thomma was quoted in Bloomberg Tax about the use of comparables to counteract scrutiny of multinational companies that loan money among their entities or rework existing loans to boost liquidity during the pandemic.

According to the article, intercompany loans help companies bolster their reserves during economic downturns, and higher rates can benefit a company by increasing the amount of interest expense it can deduct from its tax bill.

Tax authorities will likely pay special attention to companies taking advantage of higher interest rates during the crisis and ask whether an independent borrower would borrow cash when interest rates are arguably artificially high. Multinationals must value the transactions between their entities as if they were unrelated, a principle known as the arm’s-length standard under transfer pricing rules. To determine how unrelated parties would act, companies base those transactions on comparables, or real-world examples.

However, comparable interest rates for third-party loans are likely “going to be all over the place, given the unique circumstances,” said Thomma.

Click here to access the article.