The current evolution of interest rates in the financial markets (i.e. remarkable increases) can have a significant impact on the (intercompany) financing structures within multinational enterprise groups. In this respect, the key considerations are outlined below.

The increased cost of funding due to the rise in market interest rates should be reflected in intra-group financing arrangements in order to be at arm’s length


An example of the increased cost of funding (market interest rates) can be demonstrated through the “yield curves” that represent the averages of yields of a high number of bond loans available in Reuters® database. The graph depicts the evolution of interest rates (credit rating BBB with maturity of 5 years) from 1 January 2021 (0.2%) till 1 November 2022 (4.4%), an increase of 4.2% in less than a year.

From an at arm’s length standpoint, it is critical that the terms and conditions of intra-group transactions reflect third party dealings and market circumstances. The rise in benchmark rates, which leads to increased funding costs, should be reflected in the intra-group financing arrangements.

The Belgian tax authorities are systematically scrutinizing intercompany financing transactions. The increase described above will therefore certainly be a subject of discussion for the coming audit periods. 

Review the interest rates applied on intra-group loans to avoid treasury centers ending up with negative spreads

It is imperative to take into account the current (rising) market interest rates when determining the arm’s length interest rates of intra-group financing transactions, such as loans. As the cost of external funding is rising, it is important that this increased cost of funding is translated into revised interest rates charged on intra-group loans, if possible/necessary. Otherwise, the financing entity of a multinational group could potentially end up in a position where the cost of funding is higher than the income generated from intra-group loans, leaving the entity with a negative spread. 

Review the cash pooling interest rates for deposits and borrowing, assess the balances and options realistically available to cash pooling participants

The rise in interest rates will also impact the arm’s length pricing of cash pooling transactions, as interest rates on deposits and borrowing are dependent on the market rates. Furthermore, multinational groups may consider reviewing the options realistically available to cash pool participants to make sure that being a member of the cash pooling arrangement is still the most favorable option. The low interest rate situation of earlier years has revealed it is not unusual to realize a nil rate on the deposits in euro. In the light of spurting market interest rates, the deposit and overdraft rates for cash pools in many currencies will have to be revisited. If the intra-group deposit or the borrowing rate does not reflect the ongoing rise in the interest rates, this will create a risk exposure from a transfer pricing perspective. In addition, the deposits or borrowing that remain for a period longer than 12 months can be recharacterized as short-term loans according to the Belgian Transfer Pricing Circular Letter of 25 February 2020. Given the higher interest rates, this requalification risk could lead to substantial risks.

Assess the legal agreements for loans, specifically early repayment/refinancing options

For intercompany loans with fixed interest rates (but repayable on demand), the lenders could consider initiating a renegotiation of the interest rate (at arm’s length) to mitigate the risk of a loss. It is crucial to understand the terms and conditions of the legal agreements for each of the intercompany loans, and decide whether to reprice or amend any terms to mitigate the impact of the increased market rates. The Belgian tax authorities typically cherry pick the articles of the intercompany agreements they like or dislike. They reject the agreement if, for instance, they consider that the maturity of a loan is not in line with the investment, but on the other hand they make sure to refer to an early repayment clause in case this would lead to less interest charges, without considering all facts and circumstances.

Furthermore, Article 55, 1° of the Belgian Income Tax Code may limit the interest rate that can be applied to loans without a fixed maturity. In this respect, it might be worthwhile to assess whether the loan agreement in place is not (unintentionally) within the scope of this article, by not having a fixed maturity. 

Rising cost of debt may lead to increased guarantees by parent entities, facilitating local entities access to funds from local banks

The increasing cost of debt may also contribute to an augmented difficulty to avail funding in local markets from third party banks. In such situations, parent entities could potentially have to extend financial guarantees to banks for the local entities to obtain funding at favorable interest rates. These financial guarantees should be evaluated from an arm’s length standpoint, and if a benefit has been received by the local entity, then an arm’s length guarantee fee might well be applicable.

Significant differences can be observed in the amount of interest rates when comparing different currencies

The currencies in which loans are availed by financing entities may not always match the currencies used for further granting the intra-group loans. In a situation where the currency of the funding differs from the currency of the Lender, the Lender is exposed to the foreign exchange risk. As such, it is important for multinational groups to re-evaluate who is managing and controlling the foreign exchange risks within the group, as well as re-examining the existing hedging arrangements, which are typically used as a means of mitigating exposure to risks such as foreign exchange or commodity price movements. 


It is the time to start considering the above attention points by assessing how these could potentially impact the related party financing arrangements within the multinational group. Given the high volatility in the market and substantial interest rate increases, a more regular update of the intra-group financing policy will be required.

Authors: Dirk Van Stappen, Corporate Tax Partner, Yves de Groote, Corporate Tax Partner and Lavina Bansal, Senior Tax Manager