Financing arrangements are among the most frequently examined controlled transactions, and the analysis is more demanding than for most other categories.
In Cyprus specifically, the withdrawal of simplified back-to-back treatment from 2022 removed the basis on which many existing structures were built. Intra-group loans now require the same accurate delineation and economic analysis as any other controlled transaction.
The service covers:
- Accurate delineation of the arrangement — whether a purported loan is properly characterised as debt, having regard to the borrower’s capacity to service it
- Derivation of a standalone credit rating for the borrower, with consideration of implicit group support, applying published rating agency methodologies
- Build-up of the arm’s length rate from an appropriate base rate and an evidenced credit spread, benchmarked against comparable market instruments
- Analysis of non-standard terms — payment-in-kind features, subordination, security and collateral packages, prepayment rights and covenants
- Cash pooling, including characterisation of participants and allocation of the pooling benefit
- Financial guarantees, and the distinction between a guarantee conferring genuine benefit and passive association
- Interaction with interest limitation and deductibility rules in the counterparty jurisdiction, including ATAD implementation and the Russian thin capitalisation rules
We advise regularly on cross-border financing arrangements involving groups with operations in Cyprus, Greece, the UAE and the CIS. An arm’s length rate is not always fully deductible. We analyse the transfer pricing position alongside the deduction rules applying at the borrower, so the group knows before the arrangement is put in place how much of the interest will be relieved and where the exposure sits.
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