Intra-Group Financing: Is a “Benchmark” Alone Enough? A Practical Perspective on the New FCT Recommendations and OECD Guidelines

In the last quarter of 2025, the Transfer Pricing Forum (FCT) published its report on financial transactions. For CFOs and management boards of capital groups, this document may require a shift in perspective in the area of intra-group debt financing.

At the outset, it is important to clarify the legal status of the report. The Transfer Pricing Forum is an advisory body to the Minister of Finance. Its reports and recommendations do not constitute a source of law, nor do they qualify as binding tax rulings protecting taxpayers. This does not mean, however, that they lack value. On the contrary, the FCT largely systematizes and transposes into the Polish context principles previously developed by the Organisation for Economic Co-operation and Development (OECD), particularly in Chapter X of the OECD Transfer Pricing Guidelines concerning financial transactions.

Many capital groups operate under the assumption that having a “standard” benchmarking study demonstrating that the applied interest rate falls within a market range definitively closes the tax risk discussion. Unfortunately, the economic substance of such transactions may be subject to much deeper scrutiny.

Below, we outline four key areas that decision-makers should consider when determining the terms of controlled transactions involving debt financing.

Risk of Recharacterization: Can Your Company Actually Afford the Debt? (Debt Capacity Analysis)

This issue is not new, but rather firmly embedded in the OECD’s approach to accurate delineation of the actual transaction. The focus of tax authorities may shift from the transfer price (i.e., the interest rate) to the very existence of the debt itself.

If a parent company grants a loan to its subsidiary in an amount that no independent bank would have provided (due to weak financial results, lack of collateral, or excessive leverage), the tax authority may conclude that unrelated parties would not have entered into such a transaction at all. As a consequence, the transaction may be recharacterized from debt into disguised equity (a capital contribution). The consequences can be severe: interest may be excluded from tax-deductible costs, and in cross-border transactions, additional withholding tax (WHT) implications may arise with respect to the payments made.

Therefore, prior to launching financing (or modifying its terms), a debt servicing capacity analysis should be performed. Ratios such as ICR (interest coverage ratio), DSCR (debt service coverage ratio), or D/E (debt-to-equity ratio) may be examined to assess whether the borrower is realistically capable of servicing the debt. If the indicators are alarming, a capital increase may be a safer option from a tax perspective.

Implicit Support: Group Membership and the Borrower’s Credit Rating

At first glance, one might assume that when determining a borrower’s credit rating, only its standalone financial data should be considered, leading to pricing based solely on a stand-alone rating. In most cases, however, this approach is incorrect.

Membership in a capital group may enhance market recognition, perceived stability, and thus creditworthiness. These elements should be reflected in the transfer price.

Even if the parent company does not provide a formal guarantee (active support), the market and tax authorities often assume that a strong group will not allow a subsidiary to fail. The strength of this implicit support depends on the degree of integration of the entity within the group. Typically, a borrower’s standalone rating is lower than the group rating. As a result, passive support increases the affiliated entity’s creditworthiness, and the market interest rate on its debt should be correspondingly lower. Applying a high interest rate based solely on a lower standalone rating for a strategically important group entity may be an easy path toward challenging the tax deductibility of interest.

Long-Term Financing and Market Volatility: When Should Terms Be Updated?

Under Polish regulations (Article 11r of the CIT Act), transfer pricing analyses must be updated every three years, or more frequently in the event of a significant change in the economic environment. But how should this be approached in the case of long-term, fixed financial agreements?

The FCT (as well as the OECD) highlights the concept of realistically available options. For example, a change in market interest rates two years into a 10-year agreement does not automatically trigger an obligation to adjust the interest rate. Pricing in financial transactions generally reflects the agreed term of the financing. If unrelated parties in a comparable situation would not renegotiate (e.g., due to high refinancing costs or administrative burdens), related parties are likewise not required to do so. However, intra-group agreements should incorporate market mechanisms, such as covenants.

On the other hand, an update of the benchmarking analysis may be required—potentially even sooner than the standard three-year period—if the transaction:

• includes parameters requiring periodic updates;
• is concluded for less than three years and subsequently extended;
• is materially amended during its term;
• operates in an economic environment that has changed significantly enough to affect the previous analysis and transaction terms.

Given the literal wording of Article 11r of the CIT Act, this approach requires particular caution in structuring and documenting transaction terms. A robust interest rate valuation at the time of concluding the transaction is essential, reflecting the long-term nature of the financing and the risks that may materialize over that period.

Safe Harbour: A Simplification That Still Works

For smaller-scale or less strategically significant transactions, the safe harbour regime remains an attractive and well-established option. It relieves taxpayers from the obligation to prepare a benchmark study and protects against challenges to the level of interest applied.

However, one must remember that the parameters are updated annually (including the replacement of LIBOR with rates such as SOFR or SARON, the addition of POLSTR, and adjustments to margin levels). While this solution is ideal for straightforward cash flows, the capital threshold (up to PLN 20 million) means that larger investments will still require full transfer pricing analyses.

It is also worth noting that applying the safe harbour regime in financial transactions affects reporting obligations under Mandatory Disclosure Rules (MDR). As this constitutes a domestic simplification, its use qualifies as a reportable tax scheme.

Conclusion: What Does This Mean for Your Company’s Tax Strategy?

As noted at the outset, the FCT report does not create new law. However, it plays a powerful awareness-raising role, reminding taxpayers that tax authorities may diligently apply tools that the OECD has provided for years. The shift from a purely “documentation-based” approach to one grounded in genuine business rationale is now a necessity.

Key steps and recommendations:

• Financing policy review: Does the current interest on intra-group loans reflect implicit group support?
• Debt capacity simulation: Before financing a subsidiary, verify whether a commercial bank would realistically engage in lending discussions.
• Decision documentation: Build so-called defence files. If an existing loan agreement is not renegotiated despite market changes, maintain analytical documentation demonstrating why renegotiation would not have been commercially rational.

We are ready to support you in reviewing your financing model—not only to meet annual documentation requirements, but to genuinely safeguard your group’s interests in light of current audit practices and prevailing international standards.