France Legal Interest RateAdmin
In order to justify the arm`s length nature of interest rates on intra-group loans, in the absence of comparable internal transactions, the taxpayer most often uses the uncontrolled comparable price (UPS) method, which is based on external data. This method consists first of all in determining the borrower`s credit risk (or “scoring”), i.e. its ability to pay interest and repay debt, then by searching a reference financial database (such as Bloomberg, Moody`s, Standard & Poor`s) and the duration of the loan or market interest rates that apply to companies with a rating comparable to that of loans with similar characteristics. Finally, the interest rates observed for selected comparable transactions are used to build an arm`s length margin. Mohamed Haj Taieb of CMS France takes into account recent high-profile court decisions and guidance from French tax authorities that have clarified the legal framework surrounding the deductibility of interest on intra-group financial transactions. In particular, between professionals in the sales and services sector, these default interests are subject to a special regime pursuant to Article L.441-6 of the French Commercial Code. According to this article, the conditions of sale that must be exchanged between the parties define the rate of default interest related to the non-payment of an invoice. Unless otherwise stated, unless the interest rate can be set at three times the legal rate, the interest rate applied corresponds to the refinancing rate of the European Central Bank, increased by 10 points (currently 10.05%). This default interest is automatically payable from the first day following the payment date indicated on the invoice, without the need for a reminder. If the recovery costs incurred exceed the lump sum compensation, the creditor may request additional compensation.
This can only be requested if legal proceedings have been initiated or if the creditor can prove that the costs of covering the damage are significantly higher. However, the landscape has become much clearer in recent years with a series of high-profile decisions of the Council of State, the publication of the February 2020 report of the Organisation for Economic Co-operation and Development entitled “Transfer Pricing Principles for Financial Transactions” (which has been incorporated into Chapter X of the new 2022 edition of the Transfer Pricing Guidelines for Companies). multinationals and tax administrations). and the publication of eight “practical sheets” on this subject by the Directorate General of Public Finances (DGFiP), the French tax administration, in January 2021. The formula for calculating the statutory interest rate has therefore been modified to be more representative of a creditor`s refinancing costs and to be based on changes in economic activity. Although the French Supreme Court has determined that a 10% interest rate applies to late payments, this is not often the case. With a more lenient legal system towards companies in financial difficulty, charging interest and fees in French courts is not always an easy procedure. That`s why our lawyers at the French Desk can help you draft and review your contracts and conditions. In this way, the French Desk can help you increase your chances of a successful collection that will help you recover the amount owed to you. For more information, do not hesitate to contact us. Introduction of a new calculation and new legal interest rate categories. In addition, it is also common to look for market interest rates applied to companies whose rating is not strictly comparable to that of the borrower.
In its decision in the Apex Tool case, the Council of State approved the method used by the taxpayer to search for comparable assets, which consisted of searching for financial instruments issued by companies with a credit rating above and below that of the borrower. The increased interest rate provided by law applies if an amount owing as a result of a court conviction is not paid within two months of the date on which the judgment became enforceable. In this case, the legal interest rate is increased by five points (Article L.313-3 of the French Monetary and Financial Code). Alexandre Bailly is a partner in Morgan Lewis` Litigation Group.