Businesses Prep for Disputes Under German Interparty Loan Rules

Germany’s new rules on financial transactions between groups of companies are too restrictive and may result in disputes with tax authorities that could take years to resolve.

The rules under the Growth Opportunities Act enacted last month spell out new conditions for companies to get an interest deduction on related party loans. A major concern for companies is a requirement that the interest rate must be set using the arm’s length principle—the same that a company could get from an independent party—using a group rating, practitioners said.

The group rate is generally lower than a standalone entity’s rating, which accounts ...