As from the 5th of January 2023, the provisions of the Interpretive Circulars No.3 and No.5 relating to “back-to-back” financing arrangements are retroactively terminated as of 31 December 2021.
Based on this development, the application of the simplification measures on the intra-group “back-to-back” financing transactions, which allowed the imposition of the 2,286% interest rate before tax net margin, on intercompany loans and balances, will no longer be applicable as of 1 January 2022.
As from 1 January 2022, the intra-group “back-to-back” financing transactions together with any other related party transactions must be executed at an arm’s length basis and should be based on normal commercial terms. These changes in the legislation may lead to the need to prepare a transfer pricing study and the preparation of a local file covering the specific related party transactions.
