The provisions of Art. 37 of the Ordinance on Income Tax stipulates that when determining the interest rate on loans between related parties, the starting point is the average interest rate on loans granted for a period longer than one year to non-financial companies. The CNB publishes the interest rate in the current calendar year and is decided by the Minister of Finance before the beginning of the tax period in which it is applied.
The interest rate on loans between related parties for 2022 is 2.68%.
The Income Tax Act stipulates that the tax base is increased by the amount of interest that is not a taxable expense, which includes interest on loans received from related parties calculated at a rate higher than the interest rate that would be realized between unrelated parties at the time of approval loan. Also, the Income Tax Act stipulates that when determining interest income on loans granted between related parties, interest is calculated at least up to the interest rate that would be realized between unrelated parties at the time of loan approval.
This means that interest is calculated at the rate of 2.68% of the minimum required tax revenue for 2022 when a domestic company gives a loan to a foreign affiliate.
When determining interest expense on loans received from related parties, they recognize accrued interest up to the amount of the interest rate that would be realized between unrelated parties at the time of loan approval. Interest up to a maximum of 2.68% is recognized as a tax expense of the domestic taxpayer for 2022.
