The situation
A group loan agreement, uploaded
A Dutch holding company in Amsterdam is lending €60 million to its German subsidiary in Düsseldorf to fund an acquisition, at a fixed rate over seven years. The German managing director asks whether the interest will be deductible. The Dutch side wants to know what the interest income means at home. The head of tax owes both a memo before signing.
Interest limitation is a sequence of tests, not one rule: is the rate arm’s length, does a targeted anti-abuse rule apply, and how much survives the earnings-stripping cap. Each country runs the sequence its own way, and the loan agreement’s detail decides several of the answers.
What the research has to settle
The rules behind the answer
- Test in the right order
- First, whether the loan is debt and the rate is arm’s length under transfer-pricing rules. Then any targeted rules on related-party debt. Only then the general earnings-stripping cap on what is left.
- The ATAD sets the ceiling
- The Anti-Tax Avoidance Directive limits deductible exceeding borrowing costs to 30% of tax EBITDA. Member states may set a lower percentage, allow a de minimis amount of up to €3 million, exclude standalone entities and allow carry-forwards.
- Germany and the Netherlands differ
- Germany’s interest barrier uses an exemption threshold: below it the rule does not apply at all, above it the whole net interest is tested. The Netherlands applies a lower percentage than the directive’s maximum and a fixed threshold. Check the figures in force for the year.
- Germany also tests financing on its own
- German law now contains specific transfer-pricing rules for intercompany financing, covering the interest rate and the borrower’s ability to service the debt. They apply before the interest barrier and are a separate risk.
How it runs in azta
From the question to the document
The question, as you would type it
Dutch BV lends €60m to its German GmbH subsidiary for 7 years at a fixed rate to fund a share acquisition. The GmbH is the controlling company of an Organschaft. How do the German interest barrier and the financing transfer-pricing rules apply, and how is the interest income treated in the Netherlands?
You start with
A group loan agreement, uploaded
- 01
Upload the loan agreement
Add the agreement and the board approval. azta reads them and refers back to the clauses on rate, term, security and use of funds.
File upload· Pro - 02
Run the tests
Ask about each test in each country. azta cites the ATAD, the German and Dutch corporate tax rules and the court decisions on intercompany financing.
Cited research· Free - 03
Draft the memo
Ask for a memo test by test, with the projections left for finance. Edit it in Canvas.
Canvas · Ask azta· Pro - 04
Export for both boards
Export to Word for the German and Dutch management. The citations stay with the research.
Word export· Pro You send
A memo on the deductibility of the interest, test by test
What you get
A memo on the deductibility of the interest, test by test
Tax memo · draft
Intercompany loan to the German subsidiary: deductibility of interest
Arm’s length. The fixed rate must be supported by a transfer-pricing analysis, including the GmbH’s ability to service the loan from its own cash flow. Annex 1 lists the German rules on intercompany financing relied on. The benchmarking itself is with the transfer-pricing team.
Interest barrier. The GmbH and its controlled subsidiaries are treated as one business for the interest barrier. On finance’s projection, the net interest expense exceeds the exemption threshold, so the cap applies to the whole amount, and part of the interest would be carried forward in the first two years.
Netherlands. The interest is taxable income of the BV under Dutch corporate income tax. The Dutch interest deduction rules concern interest the BV pays, not interest it receives, so the Dutch question is how the BV funds the loan.
Outcomes on your numbers
What azta is worth on this task
Pro pays for itself after
13 minutes a month
At €130 an hour, that is all the time Pro (€27 a month) has to take off your desk to cover its price.
Example figures. Replace them with your own.
- Hours back a year
- 32
- Capacity at your rate
- €4,212
- More interest deductibility memos a quarter
- 0.8
- Return on Pro
- 13×
- Research
- Drafting
- Your review
A scenario you set, not a promise. The hours that come back go to another client, or deeper into this one.
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Book a demoSources azta searches here
- EUR-Lex · Curia
- Gesetze im Internet
- Rechtsprechung im Internet
- wetten.overheid.nl
What stays with you
- The transfer-pricing benchmarking and the rate.
- The EBITDA projections behind the cap.
- The decision to sign and on what terms.
Frequently asked questions
- Does azta calculate the deductible interest?
- No. It sets out the tests and cites the rules. The EBITDA and interest figures come from your model.
- Will it find German tax court decisions?
- Yes. azta searches published court decisions alongside the legislation and links each one to the full text.
- Can it read the agreement in German or English?
- Yes. Upload it in either language. azta reads it, refers back to the clause it relied on and answers in your language.
