When testing the arm's length nature of the interest rate on a direct pension commitment financed through deferred compensation in favor of a shareholder-employee, the interest rate agreed for the similar pension promise in favor of an employee who is not a shareholder and who is employed in the same company is not a suitable yardstick, the Supreme Tax Court said in a most recently published decision.
The Cologne Tax Court considers the standard actuarial interest rate of 6 % applied for the calculation of pension provisions under Section 6a of the Income Tax Act in 2015 to be unconstitutional. It has suspended the appeal and referred the matter to the Constitutional Court for that Court to consider the constitutionality of the standard rate.
The Supreme Tax Court has held that a pension obligation taken over from another company should continue to be carried at the consideration received until, with the passage of time, the “tax” value is higher.
