Personal tax rate on interest on loans between affiliates? Personal tax rate on loans between affiliates? Interest expenses have a tax-reducing effect on the borrower (top tax rate).
Withholding tax also for loans to close relatives
Family members are not necessarily close relatives in terms of withholding tax. Instead of the tax rate applicable at the time of collective bargaining, interest income from corresponding loans can be taxed at a rate of 25%. The final withholding tax came into force in 2009. Since then, interest income has been subject to a standard tax rate of 25%. Exceptions to this are interest income from loans to affiliated companies.
Application example: The interest expenses have a tax-reducing effect on the borrower (top tax rate). The lender taxed the interest income at a flat rate of only 25%. So far, it is questionable who is a “close person”. In a first dispute (judgment of 28 May 2014, Case VIII R 44/13), the applicant granted loans to his wife and to aged children.
In the second case (judgment of 28 October 2014, ref. VIII R 9/13), married couples granted full credit to their own child and their grandchildren. The third case (judgment of 16 March 2014, Case VIII R 31/11) concerns a patient who granted a loan to a limited liability company. Partners of the company were the subsidiary and the grandchildren the man.
The BFH has decided in all the aforementioned proceedings that the borrowers are not related parties to the lenders. A basic requirement for a close relationship in this context is the ability of the lender to exert a dominant influence on the borrower. The interest income is to be disclosed in appropriate cases in the income tax reimbursement of the lender as capital withholding tax subject to withholding tax.
If notices already issued can still be amended, an amendment to the above-mentioned decisions must be made if the withholding tax is more favorable.
Loans between relatives the final withholding tax rate is possible.
The BFH has now spoken on a number of exceptional situations and some taxable decisions like. The final withholding tax deduction is eliminated if the creditor and the debtor are related parties and the debtor can deduct the interest as income-related expenses or operating expenses for tax purposes. That which is to be understood under the keyword “related person” is not regulated in the law itself.
Relatives within the meaning of 15 of the tax code (eg spouses, spouses and siblings) are in the opinion of the tax authorities always close to each other, so that the flat rate tax is not taken into account here. However, the Federal Finance Office has now contradicted this broad legal view. Practical note: www. com The loan agreement was subject to standard market practice, and it can not be determined that an abusive agreement on the use of withholding tax has already been made due to a lack of collateral or a provision for prepayment penalties.
Also for the exclusion of the withholding tax rate for relatives in the sense of 15 para. 1 no. 1 tax code of a general burden advantage there is no objective justification in the opinion of the Federal Finance Court. This may be the case if the relief given to the borrower by the deduction of interest is greater than the tax burden on the creditor. If a corporation pays interest on a shareholder loan to a shareholder holding at least 10% of the shares, the flat rate tax is not included.
The interest on the loan is subject to income tax under the collective agreement. The constitutional objections of the taxpayer against the 10% participation limit has not been shared by the BFH. Situation: A taxpayer has granted a loan to a company in which its subsidiary and grandchildren hold more than 10 per cent. The interest taxed the tax office collectively with the income tax, because the creditor of the capital gains was a close to the shareholders – but rightly, as the BFH has decided.