(Principal. at Magliari and Associates) | Aug 27, 2013
I am working for a privately held company that has recently acquired a couple of subsidiaries internationally.
We currently need to provide an intercompany loans to two of the subs (located in Germany and Taiwan). The subs are wholly owned by the parent.
In loaning the funds intercompany ("parent-to-sub" or "sub-to-parent"), is it absolutely necessary to charge interest on the loans - or for simplicity, can we loan funds back-and-forth without charging interest? (while still documenting and recording the intercompany loans in the financials).
We would like to forego the requirement for charging interest expense in order to minimize the internal accounting effort since it is all internal to the corporation.
Can we loan funds without charging interest on the loan?
Editor's Discussion Summary:
It can be a little complicated
Look at FASB 52 and FIN 48
It's mainly a tax consideration
As such, it could vary depending on country
Apparently, from U.S. parent to non-U.S. sub, requires an interest rate
Consider if this is deemed repatriation of funds under Section 956.
Some auditors may not be fully versed in this
The goal of making it easy may be at odds with the tax implications
Take a look at your country's Transfer Pricing Requlations