Transfer pricing debt capacity and creditworthiness analyses for intra-group financing
Transfer pricing support for intra-group financing, including debt capacity analysis, creditworthiness assessment, credit rating determination.
Intra-group financing transactions are increasingly subject to scrutiny by tax authorities, particularly where related-party loans, interest expenses or financing structures may have a material impact on taxable income. Under the arm’s length principle, the terms and conditions of financial transactions between associated enterprises should be consistent with those that would have been agreed between independent parties in comparable circumstances. For this reason, taxpayers should not only support the arm’s length level of interest rates applied to intra-group financing but also demonstrate that the borrower had sufficient creditworthiness and debt capacity to obtain and manage the financing under market conditions.
Why debt capacity matters in transfer pricing
In the context of intercompany financing, tax authorities may examine whether the borrower would have been able to obtain a comparable level of debt from an independent lender and whether the financing should be respected as debt from a transfer pricing perspective. The OECD guidance on financial transactions refers to the accurate delineation of intra-group financial transactions, including the borrower’s ability to repay the debt and the economically relevant characteristics of the arrangement.
A lack of sufficient debt capacity or creditworthiness may increase the risk that the tax authorities challenge the deductibility of interest expenses, question the arm’s length nature of the transaction or seek to recharacterise the financing arrangement.
Therefore, a robust transfer pricing analysis of intra-group financing should address not only the interest rate, but also the commercial rationale, borrower credit profile, repayment capacity and market-based financing terms.
Our transfer pricing support for intra-group financing
We assist taxpayers in preparing transfer pricing analyses for related-party financing transactions, including:
- Creditworthiness analyses of borrowers based on financial data, business performance and forecast information.
- Credit rating determination for transfer pricing purposes.
- Market interest rate benchmarking analyses based on comparable financing transactions.
- Debt capacity analyses assessing the borrower’s ability to incur and manage debt under arm’s length conditions.
- Review of intra-group loan terms, including maturity, currency, repayment schedule, collateral, subordination and other economically relevant features.
- Support in preparing transfer pricing documentation for financial transactions.
- Assistance during tax audits and disputes concerning intragroup financing.
Key elements of an intra-group financing analysis
Why work with us?
Our team provides practical and technically robust support in transfer pricing analyses for financial transactions. We combine transfer pricing expertise with experience in financial modelling, credit risk assessment and tax audit defence.
By working with us, clients benefit from:
- extensive experience in intra-group financing and transfer pricing projects,
- a dedicated team specialising in benchmarking and financial transaction analyses,
- practical support in managing tax risk,
- robust documentation aligned with market practice and tax authority expectations,
- assistance in developing a defensible transfer pricing position before a tax audit begins.
Preparing a debt capacity analysis at the time of entering into a financing transaction may significantly improve the taxpayer’s position in the event of a future tax audit.
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