Interest rate on intra-group financing

Based on the arm’s length principle, all intra-group financing must be set on arm’s length terms and conditions for tax purposes.

These are the terms and conditions under which independent third parties (e.g. banks) would provide financing. This article, published by Lexology, compares the loan approach and the bond approach, being the most common Comparable Uncontrolled Price methods of setting an arm’s length interest rate for intra-group financing. Although the OECD has concluded that both approaches can be valid and the approaches are to a large extent substitutes, the bond approach seems to be the preferred alternative.

To read the Dutch contribution of Jimmie van der Zwaan, Thomas Dijksman and Willem Koeleman of Taxand Netherlands: click here.