Authored by: Man Xu

Recently, several high people's courts have submitted requests for instructions on determining the applicable interest rates for calculating losses due to overdue payments in foreign currencies. Upon deliberation,the Supreme People's Court replies as follow【Fa Shi [2025] No.2】:

1. “Where a party claims interest losses due to overdue payments in foreign currencies and the parties have agreed on the applicable interest rate, such an agreement shall be followed. However, if the agreed interest rate exceeds the upper limit prescribed by the governing law applicable to the dispute, the excess portion shall not be upheld.”

2. “Where the parties have not agreed on an interest rate or the agreement is unclear, the interest rate for overdue payments shall be determined as follows:

(1) For overdue payments in U.S. dollars, the interest rate may be determined based on the average loan rates for periods of up to 3 months, 3 (inclusive) to 6 months, 6 (inclusive) to 12 months, 1 year, and over 1 year, as published in the appendix of the China Monetary Policy Implementation Report regularly released on the official website of the People's Bank of China. The people's court shall determine the applicable rate based on the specific circumstances of the case.

(2) For overdue payments in euros, British pounds, Japanese yen, Australian dollars, Swiss francs, Canadian dollars, New Zealand dollars, and Singapore dollars, the interest rate may be determined by reference to the following benchmark rates, respectively:

- Euro Interbank Offered Rate (EURIBOR) for euros; 

- Sterling Overnight Index Average (SONIA) for British pounds;

- Tokyo Overnight Average Rate (TONA) for Japanese yen;

- Bank Bill Swap Rate (BBSW) for Australian dollars;

- Swiss Average Rate Overnight (SARON) for Swiss francs;

- Canadian Overnight Repo Rate Average (CORRA) for Canadian dollars;

- Bank Bill Benchmark Rate (BKBM) for New Zealand dollars; and

- Singapore Overnight Rate Average (SORA) for Singapore dollars.

(3) For other foreign currencies, the interest rate may be determined by reference to the benchmark interest rates published on the official websites of the central banks of the respective countries.”

Pursuant to Paragraph 2 of Article 38 of the Implementation Regulations of the People's Republic of China on Enterprise Income Tax Law, which stipulated that "For interest expenses incurred by a non-financial enterprise on borrowing funds from another non-financial enterprise, the portion not exceeding the amount calculated based on the interest rate of loans of the same type and for the same term offered by financial enterprises shall be allowed to be deducted; the excess portion shall not be allowed to be deducted”, if the interest paid by an enterprise exceeds the above-mentioned standard by the Supreme People's Court, the excess portion shall not be deductible for enterprise income tax purposes.