New thin-capitalisation rules limiting the deduction of interest paid to related companies

Article 113 of the 2006 Finance Act rewrites Article 212 of the General Tax Code. For financial years beginning on or after 1 January 2007, interest paid by a company to related companies is not deductible for the portion exceeding all three of the following limits: a debt ratio of one and a half times equity, 25% of adjusted current pre-tax profit, and the interest received from related companies. The non-deducted portion may be carried forward, and the rule does not apply if it is below €150,000. Decree No. 2007-282 of 1 March 2007 sets the reporting obligations. The regime was overhauled by the 2019 Finance Act; a specific limitation for thin capitalisation remains.