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New loan declaring obligation in Estonia = new headache for your company

Are you an entity in Estonia that is part of a group? Or are you a branch of a foreign entity in Estonia? Do not forget the obligation to declare all intra-group loans next year!

While the rest of the world is focused on the OECD Base Erosion and Profit Shifting (“BEPS“) Action Plans, Estonia decided to create a retroactive addition to its Income Tax Act, imposing additional obligations to companies that provide intra-group loans.

If you have given a loan to a parent company, or if loans are given horizontally within group, the repayment deadline is of importance: if the loan is longer than 48 months the lender is under an obligation to prove to the tax authorities that the borrower has the ability and intention to repay the loan. Even more, the declaration obligation covers loans retroactively from 1 July 2017, including loans older if the loan terms and conditions have been subject to changes since 1 July 2017.

There appears to be a visible misalignment between BEPS Action Plans and Estonia’s legislative amendments, as BEPS has focused its intra-group loan approach on the economic substance and interest rates of the loans, which the companies can assess and justify. The new legislative amendment in Estonia rather vests the right of risk assessment to the tax authorities.

In order to assure your appropriate intra-group financing, a comprehensive business structure is required. Bearing in mind domestic laws in Estonia, as well as international requirements, NJORD's lawyer Anne-Lii Kask will be happy to assist you.

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