Former Anti-Hybrid Regime, Interest Rates Paid Between Related Entities, and Abnormal Act of Management: Where the Deduction of Financial Charges Disappears

In a ruling dated March 17, 2023 (No. 21PA04211, SARL Malakoff Paris 16), the Paris Administrative Court of Appeal held that:
● A company may demonstrate compliance with the minimum taxation of interest, thereby excluding the application of the former anti-hybrid rules, by proving that such interest was taken into account in determining the lender’s taxable income—even if the final tax burden appears low;● A company fails to establish that an arm’s length interest rate was applied when its credit rating methodology does not reflect its actual business activities, when explanations for adjustments made are insufficient, and when certain references postdate the financing agreement; and● An borrowing company’s refusal to grant a second-ranking security to a lender, despite having committed to a bank not to provide any security or guarantee, does not constitute a normal act of management.
Read Théophile Trancart’s article, published in the Revue de droit fiscal on May 25, 2023.