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How is lending between companies with the same founder regulated?
How is lending between companies with the same founder regulated?
One company provides an interest-bearing loan to another company. The companies have the same founder, but different directors. In this case, are there any legal issues or unlawful actions?
The State Tax Service under the Ministry of Economy has stated that, according to Article 18.1 of the Tax Code, for tax purposes, related parties are individuals or legal entities whose relationships may directly affect the economic results of their activities or the activities of the persons they represent.
Considering that the persons mentioned in the inquiry are under the direct or indirect control of a third party, they are regarded as related parties (Tax Code, Article 18.2.3). It should be noted that if loan agreements are concluded with interest, then pursuant to Article 110.1 of the Tax Code, the actual amount of interest paid by related parties to each other (or, when the accrual method is applied, the amount of interest payable) may be deducted from income, provided that it does not exceed 125 percent of the average interest rate on interbank loans issued in the same currency and for similar maturities, as published by the Central Bank of the Republic of Azerbaijan for the relevant period, or determined through interbank credit auctions, where such auctions are held.
One company provides an interest-bearing loan to another company. The companies have the same founder, but different directors. In this case, are there any legal issues or unlawful actions?
The State Tax Service under the Ministry of Economy has stated that, according to Article 18.1 of the Tax Code, for tax purposes, related parties are individuals or legal entities whose relationships may directly affect the economic results of their activities or the activities of the persons they represent.
Considering that the persons mentioned in the inquiry are under the direct or indirect control of a third party, they are regarded as related parties (Tax Code, Article 18.2.3). It should be noted that if loan agreements are concluded with interest, then pursuant to Article 110.1 of the Tax Code, the actual amount of interest paid by related parties to each other (or, when the accrual method is applied, the amount of interest payable) may be deducted from income, provided that it does not exceed 125 percent of the average interest rate on interbank loans issued in the same currency and for similar maturities, as published by the Central Bank of the Republic of Azerbaijan for the relevant period, or determined through interbank credit auctions, where such auctions are held.