In an increasingly regulated global environment, financial transactions between related parties, including intragroup loans, centralized treasury agreements, and guarantees, are under closer scrutiny than ever before. Tax authorities are paying special attention to these operations, aware of their growing volume, complexity, and potential to erode tax bases.
With business globalization and the pursuit of financial efficiency, many multinationals have adopted internal financing structures that allow more agile resource allocation within the group. The use of loans between related companies, cash-pooling arrangements, and other financing strategies has become common, especially amid high inflation, currency restrictions, or liquidity crises.
The increase in these transactions responds to several structural and strategic drivers. First, companies seek to optimize working capital management and improve financial efficiency through fund centralization. Additionally, a more volatile global economic environment and uncertain exchange conditions prompt multinationals to rely on internal financing to mitigate external risks. Finally, regulatory and tax changes in various jurisdictions incentivize the design of intragroup financial structures that favor tax optimization and liquidity access.
This trend has been reinforced by international regulatory developments. The 2022 edition of the OECD Transfer Pricing Guidelines formally incorporated Chapter X, which establishes a detailed framework for analyzing intragroup financial transactions. This chapter clarifies key aspects such as credit risk evaluation, interest rate benchmarking, and the treatment of guarantees and captive insurance, among others.
What Tax Authorities Are Observing
Tax authorities worldwide are scrutinizing with greater detail:
- The terms of intercompany loans: interest rates, maturities, guarantees, creditworthiness of the borrower, and the existence of a genuine financing need.
- The operation of cash pooling agreements: the existence of real benefits for participants, appropriate remuneration, and the ability to generate financial synergies.
- Consistency with the overall transfer pricing policy: ensuring that intragroup financing aligns with the structure and risks assumed by the involved entities.
This growing scrutiny is reflected in an increase in adjustments and litigation in key jurisdictions such as Australia, Canada, Brazil, Germany, and Mexico.
Documentation Is Key
Having a general policy is insufficient. Now more than ever, it is essential to have specific, up-to-date, and technically sound documentation that supports:
- The functional and risk analysis of the involved entities.
- The justification of the type of financial instrument used.
- Benchmarking of interest rates and contractual terms.
- The economic rationale and existence of a real financing need.
Lack of adequate documentation may lead not only to tax adjustments but also to penalties, fines, and even debt recharacterization as equity in some countries.
Strategic Management of Intragroup Financing
In this scenario, companies are rethinking how they manage and document their internal financial transactions. Best practices include:
- Integrating transfer pricing analysis from the design phase of financial operations.
- Aligning contracts, internal policies, and local documentation with international guidelines, especially the 2022 OECD edition.
- Actively monitoring regulatory changes in the jurisdictions where the group operates.
- Adopting technological solutions that enable traceability, monitoring, and effective control.
Transfer pricing management can no longer be limited to meeting minimal documentation requirements. For financial operations, it means building a solid, coherent narrative supported by economic evidence that safeguards the company against increasing tax scrutiny.
Final Considerations
The growing complexity and volume of intragroup financial transactions demand more than technical compliance; they require strategic foresight and consistency across business, legal, and tax dimensions. Today, tax authorities are not just examining whether a transaction happened: they are asking why, how, and under what conditions.
In this environment, the main areas of concern for auditors and risk assessors include:
- Whether the borrower has the financial capacity to repay, and whether the financing has a genuine economic rationale.
- The creditworthiness of related parties, including the existence, or implicit assumption, of support by the group.
- The alignment between contractual terms and actual conduct, especially in cash pooling or centralized treasury arrangements.
- The pricing and conditions of the transaction: interest rates, guarantees, maturities, and their benchmarking under arm’s length principles.
These areas are also where multinational groups face the greatest challenges. Thin capitalization rules, mismatches between legal form and economic substance, lack of clear documentation, or reliance on outdated benchmarking are frequent triggers of adjustments and recharacterization risks.
To navigate this landscape, companies must move beyond the idea of minimum compliance. Robust documentation is no longer optional: it must be part of a broader risk management and governance strategy. Financial transactions, due to their materiality and visibility, are among the most exposed to scrutiny and the most critical to get right.
A well-designed, well-supported intercompany financing structure is not just a tax requirement. It is a lever for financial stability, cross-border efficiency, and long-term value creation.
