A taxpayer was required to include interest paid to both U.S. and foreign related companies on its Alabama business income tax return. The interest payments did not fall under the exceptions to the addback requirement for related-party interest payments.
Under Alabama’s addback requirement, corporate taxpayers report interest payments made to related companies as income. Exceptions from the addback requirement include interest paid to:
- to a related domestic company if the transaction involving the interest payment has a substantial business purpose and economic substance, where the terms and conditions involving the interest payment are comparable to an arm’s-length transaction; and
- a related foreign company located in a country that has an income tax treaty with the United States.
In this case, the taxpayer did not show that it met either exception. As a result, the taxpayer was denied the deduction.
Credit Suisse First Boston v. Alabama Department of Revenue, Alabama Tax Tribunal, No. BIT. 15-1666, September 7, 2017, ¶201-917
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