In a most recent judgment, the Supreme Tax Court clarified that compensation (settlement) payments in connection with an interest rate swap may be deducted as business expenses if they are used to hedge an operational interest rate risk. However, this requires that the business loan and the interest swap transaction are exactly or at least approximately matched in respect of their content (portfolio, volume, term and amount).
The Supreme Tax Court held that the compensation payment for the early abandonment of an interest rate swap is to be taxed as a separate item, rather than as part of the results of the main transaction.
