The Court concluded in this particular case that the internal CUP (via a third-party loan agreement with a bank) was available to determine the actual interest on a shareholder and a (group) vendor loan. Hence, a third-party bank loan was compared to the intra-group / shareholder loan arrangements. The facts of the case triggers the question whether the bank loan was actually comparable. For instance, the bank loan was non-subordinated, whereas the vendor / shareholder loans were or appeared to be subordinated. In this case, we can imagine that the bank was only willing to finance the particular company if likewise the shareholders provided subordinated loans (which ultimately secured partly the bank loan). In essence the terms and conditions of the bank loan might be influenced by the shareholder and group loans. By using the bank loan as comparable data this influence is or seems to be disregarded.
The particular reasoning of the German Court however emphasizes that a benchmarking analysis, which often consumes valuable time and resources, may not always be required if an internal CUP is available. At least advisers should critically assess the availability of an internal CUP and, if available, its comparability. The decision from the local tax court is now pending at the Federal Tax Court in Germany and we will monitor the follow-up to assess if this could have impact on the arm’s length TP support on intra-group financing.
