The issue was whether interest on third-party loans guaranteed by related parties could be deducted under Slovenia’s thin capitalisation rules in Article 32(3) of the Corporate Income Tax Act.
Judgment
The Supreme Court annulled the lower court’s decision and the tax authority’s original ruling, remanding the case for a retrial.
The court clarified that interest on third-party loans guaranteed by a “qualified partner” of the taxpayer is not tax deductible when such guarantees exceed four times the partner’s share in the taxpayer’s capital — unless the taxpayer can prove that the loan would have been obtained under the same terms without the guarantee. The concept of “guarantee” here does not require a direct, enforceable obligation for repayment from the guarantor’s assets; even implicit guarantees — creating a reasonable lender expectation of repayment support from the qualified partner — can trigger thin capitalisation rules.
However, if the taxpayer shows that the guarantee did not impact the terms or availability of the loan (i.e., that the lender would have extended the same loan without any expectation of related-party backing), then the interest can remain deductible. Similarly, if an unrelated party would have provided the same guarantee under the same conditions, deductibility may also be preserved. But even in those cases, a separate transfer pricing assessment of the financing terms may still apply.
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