The tax authorities have challenged the interest rate of the loan granted to the client by the associated party. They argued that the interest rate of 5% is not in line with the arm’s length principle. Our tax team prepared transfer pricing documentation, which was drafted according to the Transfer Pricing Guidelines or Multinational Enterprises and Tax Administrations provided by the OECD.
Our tax team argued that under the legal doctrine and foreign case law it is necessary to look not only at the interest rate but also at the other conditions of the loan agreement and overall situation. The fact that loan agreements in question were secured with additional guarantees should be relevant as well. Our tax lawyers successfully convinced the tax authorities that the interest rate charged is in line with the arm’s length principle and should be treated as a fair market value.