Tax | The End of LIBOR Generates Tax Impacts on Intercompany Lending

The end of the Libor rate impacts the calculation of transfer prices in loan operations carried out between companies of the same group, with consequences for the taxation of these operations.

Transfer pricing rules are applied in intra-group international transactions to avoid price distortions. In the case of intercompany loans, interest paid by a company domiciled in Brazil to a subsidiary or affiliate domiciled abroad will only be deductible for purposes of calculating income tax and Social Contribution on Net Income (CSLL) up to the amount that does not exceed the Libor rate of 6 months, plus 3.5%.

In the opposite case, when it is the company domiciled in Brazil that lends capital, and receives interest in return, the value defined for the transfer prices is the 6-month Libor rate, plus 2.5%.

Both cases concern floating rate operations, or operations abroad with a fixed rate in currencies other than the dollar and the real.

Until now, for operations carried out in other currencies in which the Libor rate was not disclosed, the Libor rate for deposits in United States dollars should be used. Therefore, with the end of the disclosure of Libor “other currencies”, these contracts must already use Libor for US dollar.

But the point of attention is that the Federal Revenue has not yet expressed itself as to the total extinction of Libor, and which index will replace it. Tax legislation determines that the verification of the rate to be used for interest must be carried out on the date of contracting the loan. That is why it is important for companies to be prepared to eventually must carry out new contracts with the regularization of the rate. Or even analyze the modification of the contracting parameters themselves. From floating interest operations to fixed interest operations.


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