In 2018, “ACQ Lender” financed a €16 million acquisition of shares with two loans: €5.75 million from ING Bank at 1.75% variable interest and a similar amount from its British parent company at 5% fixed interest. “ACQ lender” argued that 5% interest on the intra-group loan was the groups standard internal rate. “ACQ Lender” relied on an external CUP study showing a range of 4.69%–7.32%, claiming that the terms of the ING loan differed too much from the intra-group loan.
The tax authorities instead applied the internal CUP method, using the ING loan as a comparable, and after making corrections for fixed rate, subordinated nature, and repayment terms, they determined a market rate of 3.32%. The excess interest payments were rejected as a deductible expense, and an assessment of additional taxable income was issued.
“ACQ Lender” filed an appeal.
Judgment
The Court upheld the assessment issued by the tax authorities. It held that both loans (the external ING bank loan and the intra group loan) were comparable in amount, purpose, term, start and end dates, and currency, and that both financed the same acquisition. As such, the ING loan was a valid internal CUP. The court concluded that the 5% intra-group rate was not in line with market conditions and dismissed “ACQ Lender”’s second transfer pricing study.
A 10% tax increase for incorrect filing was upheld, with the court noting it applies even in the absence of intent to evade tax. The dispute was found to be a factual one over a market-conform interest rate rather than a fundamental legal issue.
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