Czech Republic: Tax treatment of interest on acquisition loan in intragroup restructuring (court decision)
The Municipal Court in Prague held for the tax authority in a case concerning the tax deductibility of interest.
The Municipal Court in Prague held for the tax authority
The Municipal Court in Prague held for the tax authority in a case concerning the tax deductibility of interest related to an acquisition loan involved in an intragroup restructuring.
- The restructuring took place with a foreign group establishing a new Czech company (“company A”), to which an intragroup loan was provided.
- Company A used the loan to finance the purchase of two operating Czech companies (“company B” and “company C”) that were already part of and owned by the same group.
- After the acquisition, company B and company C merged with company A, and this was followed by a conversion to a limited partnership in which company A was the general partner.
- Company A then effectively deducted the interest on the acquisition loan from the tax base taken over from the newly created limited partnership.
The tax administrator disallowed the taxpayer’s claimed deduction of interest, asserting that the transaction’s main purpose was to reduce the tax base of the companies in the Czech Republic. The Municipal Court in Prague agreed with the tax administrator's conclusions.
The taxpayer has filed an appeal with the Supreme Administrative Court.
Read a May 2021 report prepared by the KPMG member firm in the Czech Republic
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