A Polish company were planning to enter into a inter-group cash pooling agreement. The cash pooling operation were to be managed by a foreign bank, which would open a group account as a basic account for Norwegien parent company, the pool leader. The question was whether the taxation of interest payments made from the Polish company to the pool leader will apply art. 21 par. 3 of the Corporate Income Tax Act, as a result of which interest should be exempt from withholding tax, and if not – whether the taxation of the interest will apply art. 11 of the tax treaty between Norway and Poland. In this judgement the Court stated that the cash pool leader cannot be regarded as the owner of all receivables paid to the group account, because it is not entitled to dispose of the interest in its sole discretion. The judgement in this case is aligned with prior rulings of 11 June 2015, file ref. No. II FSK 1518/13, and of 2 March 2016, file ref. No. II FSK 3666/13. Click here for translation ...

There are a number of exceptions to the German interest limitation rule essentially limiting the annual interest deduction to 30% of EBITDA as shown in the accounts. One of these is the equity ratio rule exempting a subsidiary company from the interest limitation provided its equity ratio (ratio of shareholder’s equity to the balance sheet total) is no more than two percentage points lower than that of the group and no more than 10% of its net interest cost was paid to any one significant shareholder (a shareholder owning more than 25% of the share capital). A loss-making company paying slightly less than 10% of its total net interest cost to each of two significant shareholders claimed exemption from the interest limitation as its equity ratio was better than that of the group. The tax office applied the limitation as the two significant shareholders together received more than 10% of the net interest cost. The finance ministry decree on the application of the interest limitation supports this view. The Supreme Tax Court decided in favour of the taxpayer. The interest limitation is an exception to the general principle of taxing the net profit of a company and, as an exception, it must be clearly formulated. Given this demand for clarity, suggestions that applying the 10% limit to all significant shareholders collectively might better reflect the legislative intention have no relevance in the face of the clear wording of the statute – “one shareholder”. Similarly, the same wording also excludes suggestions that each significant shareholder is a related party to all others, since the wording clearly treats each shareholder separately. Click here for English translation Click here for other translation ...