In recent years, intercompany loans have become a hot topic in tax auditing in Japan. The reason for this is that many companies do not have a credit agreement. This makes it easier for tax auditors to challenge intra-company credit transactions. You should always consult your tax advisor on the following points for intercompany loans. The situation seems vague when it comes to zero-interest intercompany loans. In 2015, the Supreme Court considered a zero-interest foreign loan, for which, according to the Italian tax authorities, the correct application of the full-length principle would entail an interest charge. Specifically, the Italian credit company had granted a cross-border loan without interest rate authorization, which is allowed from a civil point of view. The Italian tax authorities considered that the loan should have been granted with interest and attempted to recover the corresponding amounts. However, the Supreme Court held that the att-length principle was not applicable in this case and stressed that the interest-free nature of the loan could be considered an indicator of the absence of abuse (Decision No. 15005/17.07.2015). 1. Which items must be included in the credit agreement 2. What is a reasonable interest rate? 3.
Does the credit agreement have to be in Japanese? In summary, Inter Company loans raise interesting questions not only for legislators, policymakers and tax authorities, but also for multinationals. While they are a key instrument for group financing, they present a serious risk of being used as an instrument of base erosion. Groups of companies often use such operations to optimize the financial management of the group and because of the high cost of loans to third parties. Nevertheless, intercompany loans, if made by multinationals across borders, can help manipulate the base of the group`s local companies, i.e. . . .