In terms of loans between related entities (including physical persons who are capital shareholders in a resident company), the legislation has a specific perspective on the acceptable interest rates. For example, a loan extended by a resident legal entity to a physical person – shareholder or founder – can be defined to give rise to a specific annual interest rate but an average interest rate available from commercial banks in the country will also be taken into consideration and will impact the tax base for the entity extending the loan. Specifically, if a loan is granted from a legal entity to a shareholder (physical person) at a rate lower than that used by commercial banks, the difference in the interest income the entity would have generated if using the interest rate of the commercial banks and the income that the entity has in fact generated by using the lower rate is considered as "hidden revenue" and has the same treatment as an unrecognised expense, therefore effectively raising the year-end tax base for corporate income tax purposes.
By the same token, resident companies receiving loans from related entities (including physical persons) at an interest rate higher than those available at commercial banks actually increase their tax base for corporate income tax by the amount equal to the difference in interest paid at the higher rate and interest that would have been paid if the loan agreement was under interest conditions available in banks.
Furthermore, interest paid on the basis of a loan granted from shareholders or founders who own at least 25% of the capital in the company and are in amount that is more than or equal to three times the capital participation of the loan grantor (for example a loan in amount of €1 million ($1.4 million) or more from a shareholder who has invested €333,333 in the entity) are considered as unrecognized expense for tax purposes. This provision, however, is not applicable in the first three years of the company's operation.
Yet another interest-related aspect that changes the tax base for corporate income tax is interest payments for loans received and used for purposes not related to the main business activity of the loan recipient. Interest paid for such loans is considered an unrecognised expense for tax purposes and thus increases the tax base. The same applies for interest paid on loans used for the purchase of furniture, artwork and decorative objects.
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