Intragroup loans: arm's-length rate and 2026 deduction caps

Quick answer. In 2026, interest on a loan between related companies is deductible up to a statutory ceiling rate (article 39-1-3° of the CGI), around 4.5% depending on your year-end. You may go beyond it only if you prove an arm's-length rate (article 212 I-a), then check the thin-capitalisation and EBITDA caps.

The scenario is classic: a holding company lends cash to its subsidiary, or a shareholder funds the company's current account, and interest is booked as an expense. On paper, nothing simpler. In a tax audit, it is one of the most frequent reassessments we see on family-owned groups, because the rate was set by guesswork and no one assembled the evidence file on the day of the loan.

This article is an operational how-to. It does not describe the regime in the abstract: it gives you the sequence of steps, in order, to set a rate that holds, justify it and clear the three successive filters that govern deductibility. For the overall logic of a tiered structure, our article on creating a holding company sets the scene.

The first mistake is to believe there is only one ceiling. In reality, interest on an intragroup loan must clear three independent filters. Any one of them is enough to trigger a tax add-back.

1. The rate filter (articles 39-1-3° and 212 I-a): the rate served must not exceed the statutory ceiling, unless an arm's-length rate is proven.
2. The thin-capitalisation filter (article 212 bis): if the company is over-indebted towards related parties, a reduced cap applies to financial expense.
3. The overall ATAD limitation (article 212 bis): net financial expense is capped in value or as a percentage of tax EBITDA.

An interest charge can be perfectly justified on the rate and still be added back because the company is thinly capitalised. These filters are cumulative: you test them one after another.

This is the starting point and the easy path. Interest paid to a shareholder or a group company is deductible by default up to the rate of article 39-1-3° of the CGI: the average effective rate charged by credit institutions on variable-rate loans to businesses with an initial term over two years. The tax authority publishes it periodically.

As long as you stay below this rate, you have nothing to prove. That is the safe zone.

The reference rate by year-end date#

The rate to apply is not today's rate: it is the one matching your own year-end, for a 12-month financial year. Here are the values published for the first 2026 year-ends.

In practice, a company closing on 31 December 2025 uses 4.55%. A company closing on a date not yet covered waits for the matching rate, or uses the latest known rate knowing it will be adjusted. For a year coinciding with the calendar year, you average the four quarterly rates of the period.

Our reading. In 80% of files, a small business's real market rate would be above 4.5%. But setting the rate just below the statutory ceiling avoids any discussion: it is the deduction granted by default, with no evidence file to build. We only recommend exceeding the ceiling when the gap is material and the borrower can genuinely document a higher arm's-length rate.

Article 212 I-a of the CGI opens a safe harbour. For interest paid to a related company, the deduction may exceed the ceiling if the borrower proves that the rate served does not exceed the one it could have obtained from independent financial institutions or bodies under comparable conditions. That is the "arm's-length rate".

The burden of proof lies entirely with the borrower. And the unjustified excess is added back to taxable income.

2026 watch points#

The 2026 Finance Act (article 14) extends this arm's-length proof option to interest paid to associated companies that are not related to the borrower. The scope of situations in which a rate above the ceiling can be justified therefore widens. The logic is unchanged: it is for the borrower to prove, with comparables.

Arm's-length rate evidence checklist#

• At least one real bank financing offer, as of the loan date, for a comparable amount
• A rating or scoring of the borrower (risk profile, ratios, collateral)
• Market conditions at the loan date for debt of similar term and risk
• A written rate-setting method (risk-free rate plus a justified spread)
• The dated loan agreement, with amount, term, repayment schedule and clauses
• A reproducible calculation, archived on the loan date and not reconstructed after the fact

What the tax authority looks at. The auditor rarely challenges the principle of the loan: it attacks the dating and the comparability of the evidence file. An arm's-length rate documented three years after the loan, with no contemporaneous bank offer, will not hold. The proof must be contemporaneous with the loan and relate to genuinely comparable debt, not to a generic average rate.

The rate can be flawless and the interest still capped. Article 212 bis includes a thin-capitalisation strand: a company is deemed thinly capitalised when its debt towards related companies exceeds 1.5 times its equity.

When that threshold is crossed, a reduced cap applies to net financial expense: the limit drops to €1,000,000 or 10% of tax EBITDA (the higher of the two), instead of the standard cap.

Regardless of the rate limit and even outside thin capitalisation, a year's net financial expense is deductible only up to the higher of €3,000,000 or 30% of tax EBITDA (article 212 bis, transposing the ATAD directive). Beyond that, the excess is added back, with carry-forward mechanisms over time.

Caps recap#

Within a tax-consolidated group (article 223 B), some effects are neutralised when computing the overall result. The treatment then differs from that of a standalone company and deserves a dedicated review rather than a company-by-company analysis.

Most directors think about the rate and forget the two other filters. Yet thin capitalisation is often what bites first, in structures where the holding financed an acquisition almost entirely with intragroup debt and thin equity. You then have a perfectly justified rate, yet part of the interest is added back because debt towards related parties exceeds 1.5 times equity.

The other blind spot is the absence of a written agreement. A remunerated current account with no loan agreement, no rate set in writing, no repayment schedule, deprives the borrower of any way to prove an arm's-length rate: at best, only the statutory ceiling remains.

A family holding lends €1,200,000 to its operating subsidiary to fund a growth need. The subsidiary closes on 31 December 2025.

• Rate used: 4.55%, the statutory ceiling applicable to its year-end. The subsidiary stays below the ceiling, so no evidence file is required on the rate.
• Annual interest: about €54,600, well below the €3,000,000 ATAD threshold, so the overall limitation does not bite.
• Thin-capitalisation test: its equity is €1,000,000. Its debt towards the holding (€1,200,000) is 1.2 times equity, so below the 1.5 threshold. No reduced cap.

Result: interest fully deductible, with no possible discussion on the rate. Had the same subsidiary wanted to serve 6.5%, it would have had to document a contemporaneous arm's-length rate; and had its equity been €700,000, the 1.71 ratio would have tipped it into thin capitalisation.

Two legitimate options, two profiles.

• Staying below the statutory rate suits the vast majority of groups: simplicity, safety, zero burden of proof. It is our default recommendation.
• Proving a higher arm's-length rate is justified when the borrower presents a real risk profile (young company, volatile sector, no collateral) that would make bank financing markedly more expensive, and when the extra deduction is worth the cost of the comparables file. In that case, the file must be impeccable and dated to the day of the loan.

This trade-off interacts with your overall remuneration and cash-repatriation policy. Our article dividend or salary in 2026 explains how intragroup interest fits with the other flows between a company and its shareholders, and transmission via the Dutreil pact adds a wealth dimension to steering internal debt.