The facts
Euro Agri s.r.o. (the Taxpayer) is a Slovak company in the Pegorin Group, a multinational agri-commodities group headquartered in Italy through F.I.M.A S.R.L. The group operates across Italy, Slovakia (six entities), and the Czech Republic. The Taxpayer’s primary activity was wholesale brokerage in agricultural commodities — cereals, seeds, and livestock — though it had no financial services activity registered in its objects of business.
In the tax year 2017, the Taxpayer operated as both lender and borrower within the group. As lender, it had three framework loan agreements with related parties: RD SITNO PRENČOV a.s. (2013), Euro Agri International spol. s r.o. (2014), and STAND UP DESIGN s.r.o. (2014). As borrower, it had two framework agreements: with Agra Invest a.s. (2015) and with F.I.M.A S.R.L. (2008). All five agreements used vague pricing terms — interest at ‘current market price of money’ — without specifying amounts, maturity, repayment schedules, or sanctions.
The Taxpayer priced its outbound loans at 0.6 per cent per annum, derived from its own cost of funds from F.I.M.A S.R.L. at 0.5 per cent plus a 0.1 per cent risk margin, documented using the cost-plus method. Its inbound borrowing costs were similarly low: 0.6 per cent from Agra Invest and 0.5 per cent from F.I.M.A S.R.L. The three borrowing entities — the outbound loan recipients — all exhibited deteriorating financial performance and elevated bankruptcy risk throughout the relevant period.
The Tax Office conducted an audit of corporate income tax for 2017, issuing a protocol in October 2019. After the original first-instance decision was quashed by the Ministry of Finance for errors in the benchmark rate methodology, a revised decision was issued in December 2022 increasing the taxable base from €15,170 to €384,403 and raising the assessed tax difference to €77,538.90. The adjustment comprised three elements: upward repricing of outbound loan interest using NBS sectoral average rates; full disallowance of inbound interest costs under the EBITDA-based limitation rule (§ 21a); and disallowance of a €263,000 capital fund deduction claimed on a share transfer. This FT Case focuses on the first element, with a note on the second.
The litigation
Tax Office — first-instance assessment (December 2022) · authority upholds adjustment
After the original decision was remitted, the Tax Office conducted a revised comparability analysis. It rejected the Taxpayer’s cost-plus methodology on the basis that the method is designed for manufacturing and service transactions, not financial transactions; that the documentation contained no comparable independent transactions; and that the vague framework agreements prevented identification of specific loan terms against which an external CUP could be tested.
Unable to identify comparable independent transactions, the Tax Office applied NBS sectoral average rates — published monthly average rates for EUR-denominated loans to eurozone non-financial corporates, category ‘other loans, maturity over five years’. A credit risk analysis of each borrower was performed using the Altman Z-score model; all three borrowers showed below-average credit profiles and indicators of elevated bankruptcy risk. Despite this, the Tax Office applied the mid-point of the NBS range — the annual average rate — on the basis that it should apply the rate most favourable to the taxpayer. For RD SITNO PRENČOV (2013 agreement) it applied 4.69 per cent; for Euro Agri International and STAND UP DESIGN (2014 agreements) it applied 3.72 per cent. These rates produced a repriced interest figure of €112,486 against the €14,860 actually charged — a difference of €97,625 added to the tax base.
Financial Directorate — appeal dismissed (April 2023) · authority upheld
The Taxpayer appealed to the Financial Directorate, challenging the comparability analysis, the choice of NBS rates, the selection of the five-year maturity band, the use of transaction inception year rather than audit year rates, and the failure to account for group membership effects. The Financial Directorate dismissed all grounds, emphasising that the absence of documented loan terms was the Taxpayer’s own failure and that the NBS sectoral averages represented the most reliable available comparable indicator consistent with the arm’s length principle.
Administrative Court, Banská Bystrica — action dismissed (10 July 2025) · authority prevails
The Taxpayer brought administrative proceedings seeking annulment of both decisions. The Court dismissed the action on all grounds. The cost-plus method was correctly rejected: it applies to manufacturing and service supply transactions with direct and indirect cost bases, not to financial transactions where the ‘product’ is the use of money; the Taxpayer had applied it incorrectly by treating its own cost of funds as the cost base, which is a CUP-adjacent analysis rather than cost-plus.
The NBS sectoral averages were a legitimate and proportionate benchmark. Where a taxpayer provides no independent comparable transactions, and where the loan documentation itself references ‘the current market price of money’, the NBS rates — as the institutional expression of market pricing for equivalent instruments — are the most reliable available indicator. The benchmark rate should be fixed at transaction inception, not the audit year: the Ministry of Finance had already ruled on remission that the original use of 2017 NBS rates was wrong, and the correct reference period is the year the framework agreement was entered into (2013 or 2014). The Taxpayer’s argument that individual drawdowns in 2017 constituted independent real contracts did not overcome the finding that pricing terms derived from the framework agreements and that it is standard commercial practice to fix the rate at the point of the original commitment. Finally, the mid-point rate applied in the Taxpayer’s favour was appropriate; given that all borrowers displayed below-average credit profiles, using the mid-point was if anything conservative.
ajiho commentary
The NBS sectoral average as last-resort benchmark — and its limits
The most instructive point is not that the Tax Office won, but how it won. The authority did not identify comparable independent loan transactions — it could not, because the documentation was too vague to anchor a comparability search and the Taxpayer did not lend to third parties. Faced with that evidential gap, both the Tax Office and the Court reached for NBS published statistics as the closest available approximation of arm’s length pricing.
This is a legitimate methodology under Slovak law and consistent with OECD Chapter X paragraph 10.80, which acknowledges that where internal or external CUPs are unavailable, reference to central bank or statistical data on lending rates may be appropriate as a last resort. But it carries real risk for taxpayers. NBS sector averages are not credit-adjusted; they represent a broad population of loans across all credit quality levels. For a borrower with deteriorating financials and Altman Z-score indicators of elevated default risk, the average rate is by definition conservative. The Tax Office applied the mid-point in the taxpayer’s favour here, but nothing in the methodology required it to do so. A higher-risk borrower should expect a rate above the mid-point, not at it.
Transaction inception timing — a principle with practical consequences
The rate timing question was resolved on remission by the Ministry of Finance and applied by the Court without controversy: use the year in which the parties entered the commitment, not the year of the audit. This is commercially coherent — it reflects how arm’s length lenders actually price, at the point of credit commitment. But it has a significant practical implication for groups with long-running framework lending arrangements. If a framework was entered in 2013 or 2014, when EUR benchmark rates were materially higher, the arm’s length comparison rate for subsequent years of drawdown will reflect those earlier, higher levels regardless of what market rates did afterwards. Groups that established intercompany frameworks during a higher-rate environment and are still drawing on them cannot argue that current low rates are the relevant benchmark.
The cost-plus method for financial transactions — a standing error worth flagging
The Taxpayer’s documentation applied the cost-plus method by treating its own cost of funds (0.5 per cent from F.I.M.A S.R.L.) as the base cost and adding a 0.1 per cent margin. Both the Tax Office and the Court correctly identified this as methodologically wrong. Cost-plus applies to the supply of goods or services where costs can be measured and a market markup established. For an intercompany loan, the ‘product’ is the temporary use of funds: there is no manufactured cost base, only a funding cost. What the Taxpayer was actually doing — using the upstream rate as a floor and adding a spread — is closer to a CUP analysis using an internal comparable. Had it been framed and documented that way, with appropriate adjustments for credit risk, term, and conditions, it might have been defensible. As presented, it was neither cost-plus nor CUP and satisfied neither standard.
What this means for your business
On documentation: the Tax Office’s inability to find external comparables was directly caused by the Taxpayer’s own vague loan agreements — no specified amounts, no maturity, no repayment terms. Vague documentation does not protect the taxpayer; it removes their ability to argue for a lower rate. Any group whose intercompany loan agreements still reference pricing in generic terms like ‘current market rate’ should treat that as an urgent documentation risk.
On benchmark rate timing: if your group has framework lending arrangements established during a higher-rate environment — 2013 to 2016 is the relevant window for EUR-denominated loans — and those frameworks remain in force, the arm’s length rate for ongoing drawdowns may be benchmarked to the inception-year rates, not today’s rates. The gap could be material, and a tax authority following this reasoning could apply a significant upward adjustment.
On credit risk: the Altman Z-score was used here to establish that the borrowers were high-risk, but the Tax Office then applied the sector average anyway. That will not always be the case. Where a borrower’s financial profile is materially weaker than the sector average, a tax authority using this framework can legitimately argue for a rate above the mid-point. If your group lends to related entities with thin margins, negative equity, or cash-flow dependency on group support, the credit analysis of those borrowers needs to be in the documentation.
On the interest limitation rule (§ 21a / EBITDA cap): the full disallowance of the Taxpayer’s inbound interest costs arose because the EBITDA calculation produced a negative number, making no interest deductible at all. This is Slovakia’s version of the earnings-stripping rule aligned with the EU Anti-Tax Avoidance Directive. Groups with Slovak entities carrying related-party debt and negative or marginal EBITDA should model the deductibility position before filing, not after audit.
Case reference
Euro Agri s.r.o. v Finančné riaditeľstvo Slovenskej republiky · Správny súd v Banskej Bystrici · Case reference 1Sf/2/2023 · ECLI:SK:SpSBB:2025:0823100183.1 · 10 July 2025
Judgment published on the Slovak judicial information system (JASPI / slov-lex.sk). Statutory provisions: § 17(5), § 18(1)–(3), § 21a Act No. 595/2003 Z. z. on Income Tax; OECD Transfer Pricing Guidelines (2020).