Associated Party Loans - IRD Documentation Requirements

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Associated Party Loans – IRD Documentation Requirements

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Associated Party Loans – IRD Documentation Requirements

There are many reasons why any associated party loans or distributions should be documented and tax should certainly be a major consideration particularly where the parties are associated or one is a tax resident of another jurisdiction.

The IRD has commented that it will be keeping a particularly close watch on cross border financing arrangements between associated parties and especially loans in excess of $10 million and recently published recommendations on terms to be included where a lender and borrower are associated parties as follows:

  1. Purpose or Intention: should be unambiguous, example working capital, term finance, etc.
  2. Parties: all lenders and borrowers named in full.
  3. Amount and Currency: this includes the total amount available to be borrowed under a loan facility and not just the initial sum advanced.
  4. Interest rate: an absolute rate or an external benchmark rate plus a margin. Whether the interest rate is fixed or floating and how it was determined as being reasonable.
  5. Interest payment dates: specific dates or periodic, example every 3 months.
  6. Term and Repayment: start date and maturity or a specific period for example on demand, 5 years, etc.
  7. Fees: specify any and all fees, example guarantee fee, facility commitment fee, etc.
  8. Security: whether repayment obligations are secured or unsecured. If secured, the form of the security, example the borrower’s assets.
  9. Guarantee: whether repayment obligations are guaranteed or indemnified. If so, the relevant names of the party or parties.
  10. Amendment: note any changes to the above that arise over the loan’s life.