International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Germany: Heat turned up on intra-group financing


Yu Tao

Jobst Wilmanns

Captive financing entities and other vehicles for centralising a group's funding arrangements have long been objects of suspicion for the tax auditors. However the scope for negative findings is being progressively curtailed. The 2008 Annual Tax Act effectively disallowed loan losses on intra-group finance and the interest limitation (basically to 30% of EBITDA) of 2009 significantly reduced the scope for withdrawing profits through financing charges. On the other hand, Cadbury Schweppes (ECJ case C-196/04 of September 12, 2006) now prevents a tax auditor from declaring an EU group financing centre abusive, merely because it enjoys a favourable tax regime. The tax authority's attention is now increasingly directed at the interest rate, an area unbounded by hard and fast rules. The interest rate must be at arm's length. Arm's length is undefined, but should lie somewhere between the borrowing and lending rate typically on offer from banks. Third-party comparisons often assume there to be little or no loan risk, not least in reflection of the free-of-charge "group backing" featuring in the transfer pricing rules. This, though, has prompted an intention of changing towards rating a borrower within a group at the group rating rather than on its own financial standing. Unfortunately, attempts to reach a consensus on a rating formula have all foundered on the unanswered question of a parent's ability to strip a subsidiary of assets, and thus to shift the credit risk, at will. The same problem is also felt by members of international cash pools. Frequently, many still take a broad approach of basing the pool interest rates on EONIA or EURIBOR with a discount or premium of, say 20 or 30 basis points to cover the cost of running the pool. However, tax auditors are ever more searching in their demand to know which entity takes the risk and to impute income or disallow expense accordingly.

Yu Tao (

Tel: +49 69 9585 6408
Jobst Wilmanns (

Tel: +49 69 9585 5835



more across site & bottom lb ros

More from across our site

Governments now have the final OECD guidance on how to implement the 15% global minimum corporate tax rate.
The Indian company, which is contesting the bill, has a family connection to UK Prime Minister Rishi Sunak – whose government has just been hit by a tax scandal.
Developments included calls for tax reform in Malaysia and the US, concerns about the level of the VAT threshold in the UK, Ukraine’s preparations for EU accession, and more.
A steady stream of countries has announced steps towards implementing pillar two, but Korea has got there first. Ralph Cunningham finds out what tax executives should do next.
The BEPS Monitoring Group has found a rare point of agreement with business bodies advocating an EU-wide one-stop-shop for compliance under BEFIT.
Former PwC partner Peter-John Collins has been banned from serving as a tax agent in Australia, while Brazil reports its best-ever year of tax collection on record.
Industry groups are concerned about the shift away from the ALP towards formulary apportionment as part of a common consolidated corporate tax base across the EU.
The former tax official in Italy will take up her post in April.
With marked economic disruption matched by a frenetic rate of regulatory upheaval, ITR partnered with Asia’s leading legal minds to navigate the continent’s growing complexity.
Lawmakers seem more reticent than ever to make ambitious tax proposals since the disastrous ‘mini-budget’ last September, but the country needs serious change.