Finland vs. Corp. November 2010, Supreme Administrative Court HFD 2010:73

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A company, which belonged to a Nordic group, had until August 2005, two loans with an independent party outside the group. The interest of the loans was 3.135 to 3.25 percent. The company’s long-term loans amounted to over EUR 36 million and the guarantees granted by the Company for its loans amounted to about 41 million.

In August 2005 the financing of the entire group was re organised. A Ltd paid off old bank loans and took up a new loan from the Swedish company B AB, which belonged to the group. For loans between the group companies was 9.5 percent interest rate.

The interest rate had been affected by interest rate percentages on unrelated loans , risk loans and loans from shareholders. After the change in funding A Ltd’s long-term debt totaled just over EUR 38 million and the guarantees granted by the Company for the group was around 300 million euros. A Ltd’s capital structure was not affected significantly by the change.

The interest rates that A Ltd had paid to B AB had clearly exceeded the amount that two independent companies would have paid. The average external financing rate for the entire group, which was 7.04 percent, could not be used as the basis for deductible interest into a situation where the company’s own credit condition and other circumstances, would have made it possible for the Company to obtain financing at considerably more favorable conditions. To A Ltd’s taxable income for 2005 would thus non-deductible interest added 845,354 euros, corresponding to the difference between an interest rate of 9.5 percent and an interest rate of 3.25 percent.

The law on the taxation of business income § 18 subsection 1. 2 point

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