Points to remember when analyzing intra-group loans from arm’s length perspective

During audits, tax authorities often scrutinize the increase/decrease in the interest rate on loans with reference to the results of the benchmarking. It may happen that the newly determined interest rate in an intra-group loan is considered non-arm’s length, which paves the way to estimating the taxpayer’s income.

The ruling of the VAC in Bialystok[1] refers to precisely this way of proceeding by the authorities.

Is the full range from benchmarking actually safe?

In the course of a tax audit the company filed a benchmarking analysis. The level of interest set on the loan was outside the interquartile range indicated in the analysis, but was close to the upper extreme. In the opinion of the authorities, it showed that the existing relationships affected the terms of the financing provided. In addition, in its transfer pricing documentation the company failed to explain why it considered the full range of results obtained to be comparable with respect to the transaction under review.

According to the authorities, the taxpayer overestimated tax loss that resulted from the payment of interest on loans obtained from related parties.

Importantly, neither the OECD Guidelines nor Polish regulations provide a clear answer to the doubts surrounding the question of whether each value in the full range reflects arm’s length value. On the one hand, the full range can be considered arm’s length. However, at the same time, the guidelines point out the risk of imperfections that may distort the full comparability of transactions.

Note that the vast majority of OECD member countries use an interquartile range while stating that the full range is considered in exceptional situations.

Will any analysis defend the taxpayer?

A benchmarking analysis of intragroup financing is a complex process. It involves a number of criteria and adjustments relevant from the perspective of arm’s length nature of such a transaction.

When making the analysis, pay special attention to choosing selection criteria that have a significant impact on the outcome of the analysis. They should reflect the economic features of the transaction.

With this in mind, precisely selected benchmarking criteria for loan transactions should include:

  • the borrower’s credit rating,
  • the transaction date and maturity date,
  • type of financial instrument,
  • amount, purpose and collateral of the loan,
  • the currency of the loan,
  • the terms and conditions of the loan collateral,
  • the borrower’s industry.

In the case at hand, the authorities challenged the taxpayer’s position on the arm’s length loan interest rate. They stated the criteria adopted cannot be considered perfect, if only due to the limited amount of data. Also, they pointed to (i) the insufficiently considered criterion of the maturity of the transaction, (ii) ignored matter of collateral for the loan and (iii) ignored value of the loan principal.

In the context of the ruling, it is a good idea to review the benchmarking analyses you have. You can make sure they take into account the criteria described and justify the result/range used from the analysis.

Importantly, the benchmarking analysis should also take into account economic and geopolitical influences that have been noticeable in recent years. It may be necessary to update the analysis sooner than after 3 years.


When preparing a benchmarking analysis for intra-group financing, you should to strive to identify transactions that feature the most comparable criteria to the one under review. Only a reliable analysis made in accordance with Polish regulations and the OECD Guidelines will indicate the appropriate arm’s length interest rate range for an intragroup financing transaction.

[1] Ruling of VAC in Białystok of 15 February 2023, file: I SA/Bk 519/22

Martyna Filipiak_kwadrat

Martyna Filipiak

Manager, Transfer Pricing Team

Tel.: +48 608 401 370