A simulated loan is tax-relevant on both the debtor and the lender side.
A simulated loan exists if, at the beginning of the loan, it is already clear that repayment is neither wanted nor possible. Indicators of a simulated loan include a lack of creditworthiness on the part of the debtor, the absence of a written contract, zero or insufficient collateral and/or the lack of a repayment agreement.
With a simulated loan, the entire loan amount represents a monetary benefit and must be taxed accordingly.
In terms of tax, a simulated loan entails both profit and withholding tax consequences for the company. The interest holder is liable for income tax. Under commercial law, the simulated loan is written down due to its lack of recoverability, which leads to a formal blocking of the available funds or a reduction in net profit.
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