Ruling affirms preference for use of internal CUP method to price intercompany loans

In a ruling delivered on 16 June 2025, the Court of First Instance in Antwerp (“the court”) addressed the application of the comparable uncontrolled price (CUP) method to determine the arm’s length interest rate to be applied on an intercompany loan.

The decision clarifies the preference for the use of the internal CUP method (as opposed to the external CUP method) to price such transactions.

Background and facts of the case

A Belgian taxpayer intended to acquire a participation valued at approximately EUR 16 million, to be financed through:

• An external bank loan at a variable interest rate of 1.75%; and

• A subordinated shareholder loan from its UK parent entity at a fixed interest rate of 5%.

The following table summarises the terms and conditions of both loans:

The Belgian tax authorities challenged the fixed 5% interest rate applied on the intercompany loan, contending that it was not established at arm’s length. The tax authorities determined that an interest rate of 3.32% was appropriate, using the external bank loan as a comparable uncontrolled transaction (the so-called “internal CUP method”). Adjustments were made to account for differences between the internal CUP and the intercompany loan, such as subordination and the interest rate type (floating versus fixed). The excess interest (i.e., 1.68%) was subsequently treated as a disallowed expense under article 55 of the Belgian Income Tax Code (BITC).

Ruling of the court

Although the taxpayer disputed the tax authorities’ position by referencing a transfer pricing study based on the external CUP method, the court upheld the tax authorities’ approach. In this case, the court confirmed the preference for the internal CUP method, given the similarities in terms and conditions between the external bank loan and the intercompany loan. The court concluded that the internal CUP method should be applied wherever reasonably possible, even if comparability adjustments are required to address differences between any potential external financing and the intercompany financing.

Deloitte comments

A Belgian court has now affirmed the explicit preference for, and predominance of, the internal CUP method over the external CUP method in relation to intragroup financing transactions, even when additional comparability adjustments are required. This position not only aligns with recent Belgian tax audit experience, but also with established case law in other jurisdictions.

It is important to note that the Belgian tax authorities appear increasingly to be applying article 55 of the BITC in cases involving intercompany financial transactions. This application makes it more challenging for taxpayers to initiate a mutual agreement procedure to resolve double taxation arising from adjustments to the Belgian taxable base, as depending on the fact pattern, the invocation of this provision may not be regarded as constituting a “transfer pricing adjustment.”

Key takeaway

Taxpayers are encouraged to proactively review their existing external financing arrangements to identify potential internal comparables that may serve as a starting point for pricing intercompany financing transactions. Differences between the terms and conditions of any potential external financing and intercompany loans should not automatically preclude the use of the internal CUP method.

Finally, where no suitable internal CUP is available, it is essential for taxpayers to maintain comprehensive documentation detailing the internal CUP review process and the rationale for any potential exclusion.