France Issues Draft Guidelines on Interest Deductions for Related Party Loans

French tax authorities have issued draft guidelines for rules enacted earlier this year that limit interest deductions on loans between related parties. While the rules were initially targeted at hybrid instruments, under the guidance they can apply to any debt arrangement where the interest income is not taxed or taxed at low rates. The basic requirements of the rules are as follows.

The Rule

In order for interest payments for loans from a related non-resident party to be deductible, the int…