Justifying the application of a market interest rate

In France, interest accrued in respect of a loan from a related party or an associated enterprise are deductible within the limit of the interest that would have resulted from the average effective floating rate on bank loans with a minimum maturity of 2 years, or, if higher, from the rate that the borrower could have obtained from independent financial establishments in similar conditions (i.e., a market interest rate).
This rule leads to numerous tax reassessments, particularly in leveraged financing transactions. While the burden of proof regarding the market interest rate rests with the borrowing company, the quality of the supporting analysis produced is crucial.
We offer our expertise and experience to provide tailor-made supporting analyses. We ensure that each step of the analysis is thoroughly documented, anticipating potential challenges from the French tax authorities and the courts.
We assist during the conclusion of financing arrangements, as well as a posteriori, particularly during tax audits or disputes.