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Massachusetts Appellate Tax Board holds parent company not required to add back related-party interest

The Massachusetts Appellate Tax Board has held that a parent company qualified for an exception from the corporate excise tax requirement to add back related-party interest because the underlying debt was primarily entered into for a valid business purpose, was supported by economic substance, constituted bona fide debt, and the interest reflected fair value or consideration. Specifically, the amounts the parent company advanced to its subsidiary were used for the valid business purposes of funding and expanding the operations of its subsidiaries. In advancing the funds in the form of loans instead of equity, the parent company was motivated by insurance company regulatory concerns rather than a desire to avoid tax. Therefore, the interest paid on the debt was fully deductible for Massachusetts corporate excise tax purposes.

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