Borrowings to and from related parties must be at arm’s length

They must be governed by a prior written agreement which must be certain as to amount,
repayment term (although this can be at will, or until further notice), currency
and interest rate.

Failure to conclude a written agreement in advance means
that the interest expense is disallowable for the German borrower; it gives the
tax office every opportunity of imputing its own concept of a fair market rate of
interest to the income of the German lender.