Get Intercompany Loan Agreement Template

An intercompany loan agreement, also known as an intracompany loan agreement, outlines the terms and conditions of a loan between one company and another. For example, if a company has short-term financial needs, it may opt for an intercompany loan instead of an outside financing source.

A personal loan agreement should include the following information: Names and addresses of the lender and the borrower. Information about the loan cosigner, if applicable. Amount borrowed. Date the loan was provided. Expected repayment date. Interest rate, if applicable. Annual percentage rate (APR), if applicable.

The IRS argued that the financing was equity and not debt because of this thin capitalization. The court rejected this contention and ultimately agreed that the intercompany financing was debt for purposes of U.S. tax law.

If an individual makes a loan to a company and this is subsequently written-off, the company will have a non-trading loan relationship credit equal to the amount written off. The situation, however, becomes more complicated where the parties are connected.

When an intercompany loan is created, it should be fully documented, including the amount of the interest rate to be charged and principal repayment terms. Otherwise, the loan might instead be considered an investment by the issuing business unit in the receiving unit, which can create other tax problems.

An intercompany loan, while considered a long-term-investment, is essentially a capital contribution, and repayment of the loan is essentially a return of capital or a dividend. Such repayment transactions do not cause a release of CTA, unless they effectively constitute a substantial liquidation of the foreign entity.

Are Intercompany Loans Considered Debt? Intercompany lending is considered debt in the same way as a traditional loan. The borrower is under a legal obligation to pay the issuer. Interest is deducted during tax time from each recorded loan payment.

Even if the intercompany loans are treated as assets and liabilities in the respective entities, these balances must be eliminated at the time of group consolidation of accounts. Like other loans, the borrowing company must repay the principal amount at the end of loan. read more tenor.