The ruling issued by the Court of First Instance of Belgium in June 2025, in the case of Belgium vs. “ACQ Lender” (Case No. 24/973/A), is part of the growing attention being paid to intra-group financing transactions in the area of transfer pricing. The dispute centered on the deductibility of interest paid on an internal loan used to finance an acquisition, and in particular on whether the interest rate applied reflected market conditions. The Belgian authority adopted as a reference an external bank loan contracted by the same entity, using it as an internal CUP (Comparable Uncontrolled Price) after making comparability adjustments, while the company’s defense relied on a study of external comparables that was ultimately rejected by the court.
Beyond the specific interest rate adjustment, the case highlights the importance of a precise definition of financial transactions, rigorous selection of comparables, and adequate justification of the adjustments necessary to align them with market reality. It also emphasizes that the burden of proof lies with the taxpayer, who must technically and documentarily substantiate the reasonableness of the intra-group conditions agreed upon. The decision also highlights the risk of penalties for incorrect declarations even without intent to evade, raising the standard of compliance in transfer pricing documentation and projecting relevant implications for tax practice in Europe and other jurisdictions with similar frameworks.
Factual background
- In 2018, “ACQ Lender,” an entity belonging to a business group, obtained financing for the acquisition of shares in the amount of €16 million.
- This financing was structured through two loans:
- An external loan of €5.75 million obtained from ING Bank, with a variable interest rate of 1.75%.
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- An intra-group loan (the group loan) of a similar amount, with a fixed rate of 5%, claiming that this rate was the “standard internal rate of the group.”
- ACQ Lender presented an external study of comparables showing a range of interest rates between 4.69% and 7.32% and argued that the ING loan was not comparable because it had different characteristics (e.g., its nature, conditions, subordination, repayment terms, risk, etc.).
Argumentation of the tax authorities
The Belgian authority argued that the loan granted by ING could be considered a valid internal CUP after the relevant adjustments to evaluate the intra-group transaction, given that both financings were linked to the same acquisition operation and shared relevant characteristics in terms of amount, purpose, currency, and timing. However, it acknowledged the existence of certain differences between the two instruments, such as the fact that one had a fixed rate and the other a variable rate, as well as variations in the conditions of subordination and repayment terms. To neutralize these contrasts, it proceeded to make comparability adjustments in order to obtain a more accurate basis for comparison.
After applying these adjustments, the administration concluded that the market interest rate applicable to the intra-group loan should be around 3.32%, rather than the 5% originally agreed. Consequently, it considered that the difference represented a non-deductible expense and issued an assessment increasing the taxable base of “ACQ Lender,” rejecting the deductibility of the excess interest.
Court decision
The Belgian Court of First Instance decided to uphold the assessment made by the tax authorities, expressly rejecting the study of external comparables presented by the company. In the court’s opinion, the differences pointed out by the defense with respect to the loan granted by ING were not substantial enough to exclude it as a point of comparison, especially considering the comparability adjustments already applied by the authority. In its analysis, the Court emphasized that both the bank loan and the intra-group loan shared essential elements in terms of purpose-financing the acquisition of shares-as well as in amount, currency, and time horizon, which allowed them to be treated as comparable transactions under the arm’s length principle.
On this basis, it concluded that the fixed rate of 5% agreed in the intra-group loan was not in line with market conditions, confirming as a reference the adjusted rate of approximately 3.32% determined by the administration. Additionally, the Court upheld the imposition of a 10% penalty for incorrect reporting, emphasizing that its application was appropriate even in the absence of intent to evade taxes, since the challenge was based on a factual issue related to the correct determination of the market interest rate and not on a substantive legal dispute.
Relationship with the OECD Guidelines
This case can be analyzed in light of the OECD Transfer Pricing Guidelines 2022, especially the chapters on financial transactions and the CUP method:
1. Chapter X, Financial Transactions, paragraphs 10.94-10.95:
- Recognizes that external loans from the group with independent lenders can serve as internal comparables if they meet the comparability criteria.
- Indicates that an internal CUP should not be automatically ruled out if the relevant economic conditions (amount, term, risk, repayment terms, market conditions, etc.) are similar.
2. Comparability Adjustments: The need to adjust for differences that may affect the price or economic conditions of the loan, such as fixed vs. variable rate, subordination, term, repayment conditions, guarantees, etc. These types of adjustments were central to the authorities’ analysis and endorsed by the Court.
3. CUP Method vs. Other Methods: The Guidelines favor the CUP method as one of the most reliable when there are adequate comparables. In this case, the Court held that there was a reliable comparable (ING) after adjustments, which reduces the weight of other methods or external studies that had failed to adequately distinguish the differences in comparability.
4. Burden of Proof: The decision reiterates that the company has the responsibility to demonstrate that its intra-group rate is in line with market conditions and that the comparables it offers must truly be comparable under the established criteria. “ACQ Lender” submitted a study of external comparables, but the Court found sufficient flaws to dismiss it.
Conclusion
The controversy analyzed provides highly relevant practical lessons for multinational groups in the area of intra-group financing and transfer pricing. The decision reaffirms that the precise delineation of the transaction is an essential requirement: terms such as the nature of the rate (fixed or variable), the term, the guarantees, the subordination, or the repayment schedule must be clearly defined, documented, and justified. Likewise, any differences between the loan analyzed and the comparables used must be identified and adjusted in a technical and transparent manner, otherwise the analysis may be easily dismissed.
The ruling also highlights that an external loan obtained by the same entity may constitute a valid internal CUP, provided that, after the relevant adjustments, it retains the necessary comparability. Similarly, external studies of comparables, while useful, will only be persuasive to the extent that they are based on sound methodologies and adequately explain the differences identified. The Belgian Court was clear that the burden of proof lies with the taxpayer, who must demonstrate that the rate applied reflects market conditions.
Finally, the confirmation of penalties without the need to prove fraudulent intent reinforces the compliance standard for multinationals. The key lesson is that documentation must go beyond mere formalities: it must reflect a real, robust analysis that can be defended before the authorities and in court. Consequently, this precedent strengthens the position of European tax administrations and sends a clear message: groups that resort to intra-group financing must be prepared to rigorously support their decisions under the arm’s length principle.
Source: TPCases