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Switzerland : Itelcar: How Switzerland may benefit from Portuguese thin capitalisation rules

René Schreiber
Hans Mies
Recently, the European Court of justice (ECJ) held in Itelcar v. Portugal (C-282/12) that Articles 63 and 65 TFEU preclude member states to have thin capitalisation rules in place that limit interest deduction restrictions to lenders resident in third states only. This ruling has lowered the barrier for residents of third states to claim the freedom of capital to the application of discriminatory thin capitalisation rules.

Itelcar – Automoveis de Aluguer Lda (Itelcar), a Portuguese company entered into a loan agreement with a group company that did not have direct decisive influence. The Portuguese tax authorities deemed the interest payments excessive and denied any deduction.

At that time, Portuguese thin capitalisation rules considered interest payments non-deductible if they related to excessive overall debt and were made to a company established in a third state with which it had a special relation. The term special relation did not require a notion of control, a more economic or commercial relation suffices. Given that decisive influence was not required, the ECJ tested its compatibility with Community law against the freedom of capital instead of the freedom of establishment and could extend the access to third states (Compare Thin Cap Group Litigation (C-524/04) and Lasertec (C-492/02) in which thin capitalisation rules were assessed against its compatibility with Article 43 EC (Freedom of Establishment) given that the rules addressed "groups of companies"). In Itelcar, the ECJ evolved from Lankhorst-Hohorst v. Germany (C-324/00) meaning that no longer member states have the option to apply thin capitalisation rules to third states only. Member states should either decide to include resident companies (and member state companies) or abolish the rules completely.

Switzerland may benefit directly from this ruling considering it is unlikely that member states will decide to abolish their thin capitalisation regimes. In respect to thin capitalisation rules that do not refer to a notion of control, Switzerland is entitled to a treatment equal to member states. Member states that have not already adapted their thin capitalisation regime to Itelcar should do so in the next coming period. This should enable residents of third states (including Switzerland) to directly benefit from the change in legislation caused by Itelcar.

René Schreiber (
Tel: +41 58 279 7216
Hans Mies (

Tel: +41 58 279 7470

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