New CNB discount rate and its impact on loans between related parties
Tax Alerts, November 2015
The Croatian National Bank („CNB“) published the Decision on Interest Rates, Discount Rate and CNB Fees („Decision“) on 20 October 2015. Under this Decision, the discount interest rate has changed from 7% to 3%. The decision entered into force on 31 October 2015.
This Decision will have significant tax implications for companies which have related party financing transactions.
In Croatia, the CNB discount rate has been applied as the effective market interest rate in loans between related parties for a significant period. The change to this rate, the first one since 2011, will have the following tax effects:
- In case of loans to related parties, the tax base will be increased only if the contracted interest rate is lower than 3% (until the change, the tax base was increased only if the agreed interest rate was lower than 7%)
- In case of loans received from related parties, the tax base will be increased if the contracted interest rate is higher than 3% (until the change, the tax base was increased only if the contracted interest rate was higher than 7%)
Given that these changes may have significant impact on your tax calculation in 2015, and especially in 2016, we recommend that you perform a detailed review of the group financing in your company or group of companies to be able to react properly and avoid unexpected tax expenses.
We will be happy to provide additional support with your decision making resulting from these changes. You are welcome to contact our tax experts for further information.
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