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Loan arrangement fee3/30/2024 Therefore, the taxpayer argued that the arrangement fee does not qualify as interest expense in terms of the interest deduction limitation rules. The taxpayer was of the opinion that a less strict interpretation of what qualifies as interest expense must be applied and that services provided in return for the arrangement fee are services that are not closely related to interest and go beyond what qualifies as payment for the provision of capital. In line with current administrative guidance, the tax authorities were of the opinion that fees that are of compensatory nature (e.g., arrangement fees) are classified as interest expense within the meaning of the interest deduction limitation rules. In a case decided by the BFH, a German GmbH paid an external bank an arrangement fee for the loan syndication to multiple banks in an effort to raise capital. ![]() Commonly, such services, e.g., helping with the selection of potential lenders, monitoring timelines, organizing the syndication process, are provided and remunerated by a fee. ![]() Typically, one lender (usually a bank) in the syndicate will take the lead and interact with the borrower. One such example are arrangement fees, which are often seen in loan arrangements where there is not only one lender but rather a syndicate of lenders. The definition of what qualifies as interest expense under the interest deduction limitation rules has been part of controversial discussions between taxpayers and the tax authorities. ![]() The interest deduction limitation rules generally limit the deductibility of annual net interest expense to 30% of the EBITDA of a company. In a decision dated 22 March 2023 (and published on 20 July 2023), Germany’s federal fiscal court (BFH) ruled against the tax authorities and in favor of taxpayers that “arrangement fees” that are paid to lenders do not qualify as interest expense under the interest deduction limitation rules. Federal fiscal court rules that arrangement fees are not interest expense within the meaning of the German interest deduction limitation rules
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