Germany: Short-term debt exception to thin-capitalization rules

A recent tax court decision raises the possibility that an important new exception may be emerging in the complex statutory thin-capitalization rules which have been in force in Germany since 1994. There is a general agreement that the thin-capitalization rules do not apply to short-term debt. The tax authorities have, however, sought to restrict this exception to short-term credit extended within the context of a normal trading relationship.