Louisiana Administrative Code › Title 61 - REVENUE AND TAXATION › Part I - Taxes Collected and Administered by the Secretary of Revenue › Chapter 3 - Corporation Franchise Tax › Section I-303 - Borrowed Capital

Current through Register Vol. 50, No. 6, June 20, 2024
A.
				General
1. As used in this Chapter, borrowed
				capital means all indebtedness of a corporation, subject to the provisions of
				this Chapter, maturing more than one year from the date incurred, or which is
				not paid within one year from the date incurred regardless of maturity
				date.
2. All indebtedness of a
				corporation is construed to be capital employed by the corporation in the
				conduct of its business or pursuit of the purpose for which it was organized,
				and in the absence of a specific exclusion, qualification, or limitation
				contained in the statute, must be included in the total taxable base. No amount
				of indebtedness of a corporation may be excluded from borrowed capital except
				in those cases in which the corporation can demonstrate conclusively that a
				specific statutory provision permits exclusion of the indebtedness from
				borrowed capital.
3. In the case of
				amounts owed by a corporation to a creditor who does not meet the definition of
				an
affiliated corporation
contained in
				R.S. 47:603,
				all indebtedness of a corporation which has a maturity date of more than one
				year from the date on which the debt was incurred and all indebtedness which
				has not been paid within one year from the date the indebtedness was incurred,
				regardless of the maturity or due date of the indebtedness, shall be included
				in borrowed capital. Determination of the one-year controlling factor is with
				respect to the original date that the indebtedness was incurred and is not to
				be determined by any date the debt is renewed or refinanced. The entire amount
				of long-term debt not having a maturity date of less than one year, which was
				not paid within the one-year period, constitutes borrowed capital, even though
				it may constitute the current liability for payment on the long-term
				debt.
4. The fact that indebtedness
				which had a maturity date of more than one year from the date it was incurred,
				was actually liquidated within one year does not remove the indebtedness from
				the definition of borrowed capital.
5. For purposes of determining whether
				indebtedness has a maturity date in excess of one year from the date incurred
				or whether the indebtedness was paid within one year from the date incurred,
				the following shall apply: With respect to any indebtedness which was extended,
				renewed, or refinanced, the date the indebtedness was originally incurred shall
				be the date the extended, renewed, or refinanced indebtedness was incurred. All
				debt extended, renewed, or refinanced shall be included in borrowed capital if
				the extended maturity date is more than one year from, or if the debt has not
				been paid within one year from, that date. In instances of debts which are
				extended, renewed, or refinanced by initiating indebtedness with a creditor
				different from the original creditor, the indebtedness shall be construed to be
				new indebtedness and the one-year controlling factor will be measured from the
				date that the new debt is incurred.
6. For purposes of determining whether
				indebtedness has a maturity date in excess of one year from the date incurred
				or whether the indebtedness was paid within one year from the date incurred,
				with respect to the amount due on a mortgage on real estate purchased subject
				to the mortgage, the date the indebtedness was originally incurred shall be the
				date the property subject to the mortgage was acquired by the
				corporation.
7. In the case of
				amounts owed by a corporation to a creditor who meets the definition of an
affiliated corporation
contained in
				R.S. 47:603,
				the age or maturity date of the indebtedness is immaterial. An affiliated
				corporation is defined to be any corporation which through (a) stock ownership,
				(b) directorate control, or (c) any other means, substantially influences
				policy of some other corporation or is influenced through the same channels by
				some other corporation. It is not necessary that control exist between the
				corporations but only that policy be influenced substantially. Any indebtedness
				between such corporations constitutes borrowed capital to the extent it
				represents capital substantially used to finance or carry on the business of
				the debtor corporation, regardless of the age of the indebtedness. For this
				purpose, all funds, materials, products, or services furnished to a corporation
				for which indebtedness is incurred, except as provided in this Section with
				respect to normal trading accounts and offsetting indebtedness, are construed
				to be used by the corporation to finance or carry on the business of the
				corporation; in the absence of a conclusive showing by the taxpayer to the
				contrary, all such indebtedness shall be included in borrowed capital.
a. To illustrate this principle, assume:
i. Corporation A-Parent of B, C, D, and
				E;
ii. Corporation B-Nonoperating,
				funds flow conduit, owning no stock in C, D, or E;
iii. Corporation C-Other
				Corporation;
iv. Corporation
				D-Other Corporation;
v. Corporation
				E-Other Corporation;
vi. any funds
				furnished by the parent A to either B, C, D, or E constitute either a
				contribution to capital or an advance which must be included in the taxable
				base of the receiving corporation;
vii. any funds supplied by D or E to C,
				whether or not channeled through A or B, would constitute borrowed capital to
				C, and the indebtedness must be included in the taxable base. In the absence of
				a formal declaration of a dividend from D or E to A, the funds constitute an
				advance to A by D or E and borrowed capital to A. In all such financing
				arrangements, the multiple transfers of funds are held to constitute capital
				substantially used to carry on each taxpayer's business.
8. The amount that normal
				trading-account indebtedness bears to capitalization of a debtor determines to
				what extent said indebtedness constitutes borrowed capital substantially used
				to finance or carry on the business of the debtor. Due consideration should
				also be given to the debtor's ability to have incurred a similar amount of
				indebtedness, equally payable as to terms and periods of time.
9. In the case of equally demandable and
				payable indebtedness of the same type between two corporations, wherein each is
				indebted to the other, only the excess of the amount due by any such
				corporation over the amount of its receivable from the other corporation shall
				be deemed to be borrowed capital.
10. With respect to any amount due from which
				debt discount was paid upon inception of the debt, that portion of the
				unamortized debt discount applicable to the indebtedness which would otherwise
				constitute borrowed capital shall be eliminated in calculating the amount of
				the indebtedness to be included in taxable base.