Financing a business with a loan is common practice. Loans granted to a company by its shareholder are particularly valued. Legislators promote this form of lending, as evidenced by the introduction of an exemption from the tax on legal transactions.
Receiving a loan does not constitute income for the borrower, nor does it constitute a tax-deductible expense for the lender. These are not definitive expenses/benefits. However, the borrower's income will be the amount of the forgiven loan, and in the case of a CIT taxpayer, also the amount of the expired loan. Because a loan is a repayable benefit, its granting and repayment do not result in the payment of income tax.
Interest on borrowed capital, which constitutes the lender's remuneration, is treated differently. While the Civil Code does not impose an obligation to charge interest on loans, interest-bearing loans are most common. This is particularly important when a shareholder grants a loan to a company. If the loan were interest-free, the company would receive a gratuitous benefit on which it would be required to pay income tax. Importantly, from the perspective of transfer pricing regulations, the shareholder and the company are related entities. Such entities should apply market prices in all transactions concluded between them. In such a case, it is not sufficient that the loan bears interest. It is crucial that the interest rate corresponds to market conditions.
Interest received by the lender for providing capital constitutes taxable income. However, interest paid will not always constitute a tax-deductible expense for the borrower. For this to be the case, the loan must meet the statutory definition of a tax-deductible expense. According to this definition, tax-deductible expenses are costs incurred to generate income from a source of income or to maintain or secure a source of income, excluding costs that have been enumerated as expenses by the legislature.
Therefore, if the loan was granted for business purposes and there is a causal relationship between the payment of interest and the creation, increase, or potential creation of income, then the interest may be considered a tax-deductible expense. However, it should be remembered that this only applies to interest paid. Unpaid or forgiven amounts will not constitute an expense. Tax laws also limit the amounts that can be considered a tax-deductible expense in the case of debt financing to PLN 3 million or the amount calculated according to the statutory formula, whichever is higher.
Sometimes, the lender requires third-party security for loan repayment. This may take the form of, for example, a bank guarantee or surety. Obligations are often secured by specialized entities – a bank guarantee is issued by a bank, while a non-profit guarantee fund can provide a surety. However, any entity, both legal and natural persons, can provide a surety. Often, a partner serves as a guarantor for a company's obligation. If the company defaults on its loan repayment obligation, the partner is liable for it with their personal assets. However, it is important to remember that a surety is a benefit provided by the guarantor to the debtor. Therefore, if the partner does not receive remuneration for the surety, the company will receive a gratuitous benefit that is taxable. However, if the agreement between the guarantor and the debtor provides for a fee-based surety, it is important to remember that the amount must reflect the market value. Transfer pricing regulations apply to a partner's guarantee for company obligations, as with a loan granted by the partner to the company.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of February 5, 2024
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