CUP Methods in Intra-Group loan pricing: Key insights from Antwerp court judgements

In recent years, the Belgian Tax Authorities (BTA) have intensified their focus on the (intercompany) financing arrangements of MNE groups. On June 16, 2025, the Court of First Instance of Antwerp issued two noteworthy judgements concerning transfer pricing (“TP”) and withholding tax. These judgements provide valuable insights into how both the BTA and the courts approach the assessment of arm’s length interest rates on intra-group loans. Below, we take a closer look at the TP aspects of the case. 

Judgment of the Court of First Instance in Antwerp dated June 16, 2025.
 

Background of the case

The case concerned the financing of the acquisition of the shares of the parent holding company of a Belgian operating company of approximately EUR 16 million, largely funded through:

• An external bank loan at a variable interest rate of 1.75%, and
• A subordinated shareholder loan (intercompany loan) at a fixed interest rate of 5%.
   

Key facts

• During the audit, the BTA questioned the 5% intra-group interest rate. The taxpayer could not provide supporting documentation or analysis beyond indicating that the rate reflected its “standard policy” for shareholder loans. No transfer pricing study or contemporaneous substantiation was shared with the BTA.
  
  
• The BTA considered this approach inconsistent with the arm’s length principle and applied the internal CUP method, using the conditions applied on external bank loan as reference point. The two loans (external bank loan and intercompany loan) were broadly comparable in terms of amount, purpose, maturity, currency and repayment terms. To account for differences, the BTA applied adjustments for subordination, absence of collateral, and the loan type (fixed vs variable interest structure).
  
  
• The taxpayer disputed both the use of an internal CUP and the specific adjustments made and instead presented an external CUP study showing a range of 4.69%–7.32%. It also argued that the bank loan was not sufficiently comparable due to its variable nature, and covenant structure.
  
  
• While the BTA accepted certain arguments on comparability adjustments, it rejected the external CUP analysis. It noted that insufficient evidence was provided to demonstrate why the internal CUP could not be applied. As a corroborative check, the BTA reviewed prevailing market conditions at the time of the intra-group loan, to support its position and indicated that market rates were below the 5% applied. Based on their analysis, an arm’s length interest rate of 3.32% was determined. The excess portion of the interest was disallowed as a deductible expense under Article 55 Belgian Income Tax Code (“BITC”) 92.
   

Court’s decision

The Court stressed that the burden of proof lies with the taxpayer who must reasonably demonstrate that the interest paid does not exceed an arm’s length rate, taking into account the specific circumstances of the loan.

The Court agreed with the tax authorities that the intra-group loan and the external bank loan were broadly comparable, given their similarities in amount, purpose, timing, maturity, currency, and repayment profile. The Court underlined that where an internal CUP is potentially available, it should be tested first, with differences addressed through appropriate comparability adjustments rather than being disregarded without any assessment.
 

Key takeaways and considerations

• Assess potential internal CUPs: It is recommended to evaluate whether internal CUPs are available and applicable. Where they are deemed not sufficiently comparable, it is advisable to document the rationale clearly. Without such substantiation, reliance on external CUPs may carry less weight.
  
  
• Review differences, don’t simply dismiss them: Differences in loan terms (e.g. subordination, repayment profile, fixed vs. variable) do not automatically rule out the applicability of an internal CUP. They can in some cases be addressed through quantifiable comparability adjustments, consistent with the OECD Transfer Pricing.
  
  
• Prioritize contemporaneous documentation: It is recommended to have a robust TP documentation upfront, as demonstrating arm’s length conditions ex post can be significantly more challenging.
  
  
• Anticipate the invoking of Article 55 BITC in the context of financial transactions: This reflects a broader trend where the BTA invokes article 55 BITC in the context of financial transactions, resulting in a greater emphasis on the taxpayer’s obligation to pro-actively substantiate its position. Proactive and well-structured documentation is therefore essential.