Intercompany Loan Agreement Sec
U.S. tax rates. Practitioners should be aware of certain fundamental principles of U.S. tax law, which may affect the parties` characterization of funds set up as an intercompany for U.S. tax purposes. First, the parties` intention to treat the funds presented as loans is a relevant factor for tax purposes, but not the only one. In order for the parties` intention to be met, the loan must be documented and the conditions set must indicate an Arms-Length transaction. Documents should provide for a return that is not based on the borrower`s income, but reflects an economically reasonable interest rate, with fixed payment dates for principal and interest and other conditions typically in a loan. Guarantee of an intercompensated loan. Another way to improve the position of the parent company in the event of bankruptcy of the US subsidiary is to guarantee a possible intercompany loan with guarantees.
Pursuant to Section 547 of the U.S. Bankruptcy Code, if the guarantees are to be granted by the United States. The subsidiary is not documented at the same time as the evolution of the funds by the parent company, nor all the advanced steps (filing of financing declarations, accounting for mortgages, etc.) are concluded simultaneously (or within 30 days), the granting of guarantees by the US subsidiary can be avoided (i.e. cancelled) and all repayments that the parent company had to receive, can be returned as “preferences” in the event of subsequent bankruptcy of the U.S. subsidiary. .