A Portuguese subsidiary borrowed funds from a bank and on-lent the majority interest-free to its parent company, deducting the related interest costs. The tax authority disallowed the deduction under Article 23 of the Tax Code, arguing the expenses did not protect or generate income. The parent challenged this, arguing transfer pricing rules under Article 63 should apply instead. The CAAD Administrative Tribunal dismissed the complaint in 2022, upholding the assessment ... Read more

In some intra-group transactions, the cost of funds approach may be used to price loans where capital is borrowed from an unrelated party which passes from the original borrower through one or more associated intermediary enterprises, as a series of loans, until it reaches the ultimate borrower. In such cases, where only agency or intermediary functions are being performed, as noted at paragraph 7.34, “it may not be appropriate to determine the arm’s length pricing as a mark-up on the costs of the services but rather on the costs of the agency function itself.” ... Read more

In some intra-group transactions, the cost of funds approach may be used to price loans where capital is borrowed from an unrelated party which passes from the original borrower through one or more associated intermediary enterprises, as a series of loans, until it reaches the ultimate borrower. In such cases, where only agency or intermediary functions are being performed, as noted at paragraph 7.34, “it may not be appropriate to determine the arm’s length pricing as a mark-up on the costs of the services but rather on the costs of the agency function itself.” ... Read more

A Trust declared interest-free loans to related parties in its 2014 tax return without recognising any interest income. The Liechtenstein tax administration applied the arm's length principle, imputing a 4.5% minimum interest rate on the GBP-denominated loan and issuing an upward adjustment. The Administrative Court confirmed the assessment, and the Constitutional Court dismissed A Trust's subsequent complaint in February 2019, ruling in favour of the tax authority ... Read more

A Trust declared interest-free loans between related trusts in its 2014 tax return, recognising no interest income. The Liechtenstein tax authority applied a 4.5% minimum arm's length rate to the loan, resulting in an upward adjustment of USD 241,172. A Trust appealed, but the Liechtenstein Administrative Court dismissed the appeal in February 2018, confirming that the arm's length minimum interest rate guidance applied to interest-free related-party loans ... Read more

A Portuguese holding company financed its subsidiary through shareholder loans while borrowing externally at higher rates. The tax authority denied deduction of the net financing costs under IRC Article 23, arguing the expense was not fully passed on. The CAAD tribunal ruled in favour of the taxpayer in 2017, finding the financing costs were incurred in the exercise of the company's own activity and were therefore fully deductible ... Read more