Intragroup financing—loans, cash advances, cash pooling, and guarantees—accounts for a significant and growing proportion of transfer pricing adjustments. The OECD has devoted an entire chapter to this topic in its Transfer Pricing Guidelines (Chapter X, published in February 2020 and incorporated into the 2022 Guidelines), France has strengthened its documentation and legislative requirements, and French and international case law has expanded considerably in recent years.

The issue is straightforward: intra-group financing that does not comply with the arm’s-length principle (Article 57 of the French General Tax Code) exposes the group to a tax reassessment on the interest deducted, or even to a reclassification of the financial instrument itself. Tax authorities no longer limit themselves to verifying the interest rate: they examine the overall consistency of the group’s financing policy—the choice of instrument, the borrower’s risk profile, the benchmarking methodology, comparability adjustments, and even the date on which the analysis was conducted.

This overview examines the four main transfer pricing issues related to intra-group financing: the choice of financing method, cash pooling, intra-group loans, and financial guarantees.

I. Choosing a financing method: an often-overlooked prerequisite

Before even considering the appropriate interest rate for an intra-group financing arrangement, it is necessary to verify that the chosen financing method is consistent with the economic substance of the transaction. This is the principle ofaccurate delineation of the transaction, set forth in Chapter I of the OECD Principles and elaborated in paragraphs 10.4 through 10.18 of Chapter X.[1]

The choice of financing must address three fundamental questions:

1. Alignment with the financed asset. A need for working capital is logically financed through a short-term cash facility (cash pooling, cash advance). A real estate investment or a restructuring requires a long-term loan, or even a capital increase. A mismatch between the nature of the asset and the term of the financing raises red flags for management.
2. The borrower’s ability to repay. The OECD emphasizes that a precise definition of a cash advance requires an assessment of whether the borrower has the financial capacity to repay (§ 10.12–10.13). Germany has, in fact, explicitly incorporated this criterion into its legislation through the Growth Opportunities Act of 2024, which requires the borrower to demonstrate their ability to repay the loan over its entire term.[2]
3. Market conditions. Would an independent operator have agreed to this type of financing, under these conditions, for this amount? If the answer is no, the authorities may conclude that the financing does not comply with the arm’s-length principle.

The risk of reclassification

The Council of State has confirmed that granting an interest-free advance to a foreign subsidiary constitutesan “inherent benefit” within the meaning of Article 57 of the General Tax Code, without the tax authorities having to demonstrate an abnormal benefit. The burden of proof then falls on the taxpayer to demonstrate that the rate applied by the tax authorities exceeds the market rate[3].

Beyond the financial terms, tax authorities are increasingly scrutinizing the consistency of the financing method itself and may, if necessary, reclassify the instrument:

– A cash advance that extends beyond one year without a repayment schedule may be reclassified as a long-term loan, with implications for the applicable interest rate and expected terms (collateral, restrictive covenants);

– A loan granted to a subsidiary whose financial situation does not allow for repayment may be reclassified as quasi-equity, resulting in the interest being non-deductible and the loan potentially being treated as a dividend (withholding tax, tax treaty).

II. Cash Pooling

Cash pooling is a common practice in international groups, involving the consolidation of subsidiaries’ cash surpluses and shortfalls within a centralizing entity (the “cash pool leader”). The OECD addresses this in paragraphs 10.109 through 10.148 of Chapter X.[4]

Vocation and Limits

Cash pooling addresses short-term working capital needs. Positions in the pool must remain temporary and fluctuating. A debit balance that persists structurally for more than one year for a single entity risks being reclassified as a long-term loan by the tax authorities, with all the resulting implications in terms of interest rates and documentation.

Job description for the cash pool leader

The key issue is the functional classification of the centralizing entity. The OECD Principles distinguish between two types:

– If the leader is limited to administrative and coordination functions (aggregating balances, executing transfers, liaising with the bank), without assuming credit risk or exercising decision-making authority over the allocation of liquidity, their compensation should reflect the provision of services, typically a cost-plus approach based on the costs of the centralization program;

– If the leader performs actual treasury functions (liquidity management, credit risk management, capital allocation, investment decisions), they resemble a financial intermediary and may be compensated through a spread between borrowing and lending rates.

The Bunge Ibérica decision (Spanish Supreme Court, July 15, 2025) perfectly illustrates this distinction. The Spanish court, which is closely aligned with the OECD Principles, ruled that in a physical cash pool where the leader assumes no financial risk, applying a borrowing rate higher than the lending rate (a “bank-style” spread) is not justified. The decision also specifies that when liquidity and risks are shared in such an arrangement, credit scoring must be established at the group level and not at the level of each borrowing subsidiary.[5]

Operating Rules

A few practical rules should be kept in mind: the issue of the floor rate, particularly in the context of negative benchmark rates; the annual update of interest rates to account for changes in market conditions, which are particularly volatile in the short-term market (or even more frequently in the event of significant changes at the central bank or in market conditions); and the principle that each participant should be better off within the pool than outside it.

III. Intragroup Loans

Intragroup loans are the type of financing most frequently scrutinized by tax authorities. The determination of an arm’s-length rate is based on a two-step analysis, now well-established in French case law (CE, 2019, Siblu, No. 411189; CE, opinion, 2019, Wheelabrator, Nos. 429426 and 429428): first, assess the borrower’s credit risk profile; then, select comparables to determine a market rate.[6]

The borrower's credit rating

The starting point is the borrower’s standalone credit rating—that is, its own financial position—rather than the group’s consolidated rating (OECD §§ 10.62–10.75). The assessment is based on the same criteria as those used by credit rating agencies (financial ratios, industry sector, default history), supplemented by scoring tools recognized as reliable evidence since the BSA (CE, 2020, No. 433723) and Willink (CE, 2022, No. 446669) rulings.[7]

However, credit ratings cannot ignorethe effect of group affiliation. The OECD Principles recognize the existence of implicit group support (§§ 10.76–10.82), which can improve the borrower’s rating. This effect must be taken into account in the analysis, as recently reiterated by the Paris Court of Appeal in the Défense avenue ruling (April 2, 2026, No. 24PA03322), which penalized the failure to consider group-related factors in the risk profile.[8]

Key point: The risk profile is a snapshot in time, not a constant. The Council of State emphasized this strongly in the Ferme PV1 ruling (November 24, 2025, No. 490270): a project company in the construction phase and the same asset once connected to the grid do not present the same risk profile. This transition can result in a shift of several rating notches—with a direct impact on market credit spreads. Applying a rating grid designed for a 2012 document to 2013 financing constitutes a misrepresentation.[9]

As for credit scoring tools (such as Moody’s RiskCalc), the Council of State clarified in 2024 that a credit rating obtained without information on the company’s industry is not sufficiently reliable to be considered.[10]

Determining the arm's-length rate

Once the risk profile has been established, the next step is to determine the applicable market rate. The preferred method is the CUP (Comparable Uncontrolled Price ) method, whether the comparables are internal (loans taken out by the borrower—or by a group entity with a similar credit rating—from third parties) or external.

In practice, most benchmark studies rely on portfolios of bonds issued by comparable companies in the market (OECD §10.93–10.94). This approach is widely accepted by French courts. The Council of State validated the use of bond benchmarks as early as the Wheelabrator ruling (2019), and clarified in 2024 that the arm’s-length rate established using yield curves based on all recorded transactions for loans of the same maturity and risk profile constitutes a relevant comparator.

Recent case law shows, however, that courts are exercising increasingly detailed scrutiny over the implementation of these benchmarks. Four decisions handed down between November 2025 and April 2026 clarify the parameters:

– Trema Holding France (CAA Paris, January 16, 2026, No. 24PA02156): an intra-group loan of €32 million at 4% was reduced to the statutory reference rate under Article 39-1-3° of the General Tax Code, as the studies provided by the company were deemed insufficiently conclusive;[11]

– CA Traiteur et salaisons (CAA Paris, April 2, 2026, No. 24PA04109): The fact that bonds were initially subscribed to by third parties does not create a presumption of a “market rate.” Since the debt is intra-group, the company must demonstrate the rate that an independent lender would have agreed to. The bond benchmark is rejected due to a lack of sufficiently substantiated comparability (size, currency, market, consistency of assumptions);[12]

– Défense Avenue (CAA Paris, April 2, 2026, No. 24PA03322): An ex post study may be admissible if it is reconstructed as of the relevant date, but the pool of comparables (6 issues) is deemed too limited and not sufficiently representative.

In its GEII Rivoli Holding ruling (April 5, 2024, No. 471139), the Council of State confirmed that bond comparables must be realistic for the borrower in question: a company holding only a single asset financed by the disputed loan had failed to establish that a bond issue constituted a credible alternative for it. This decision remains an exception: relying on the bond market as a source of comparables is standard practice, widely accepted by the courts, provided that comparability adjustments (liquidity, seniority, currency, maturity) are properly documented.

Repricing and Implementation Terms

An important practical point: the interest rate on an intragroup loan is generally set at the time the loan is established, based on market conditions at that time. An intragroup loan is not “repriced” every year, just as a fixed-rate loan taken out with a bank does not have its rate reviewed annually. However, if the terms of the loan are substantially modified (extension, change in currency, change in amount, addition or removal of collateral), repricing is necessary.

IV. Intragroup Guarantees

Intragroup financial guarantees raise a specific issue regarding transfer pricing: should they be remunerated, and if so, how? The OECD addresses this in paragraphs 10.154 through 10.188 of Chapter X.[13]

Explicit guarantee and implicit support: a fundamental distinction

It is important to distinguish between:

– implicit group support (§ 10.162), that is, the benefit enjoyed by a subsidiary solely by virtue of its membership in a group. This implicit support is not subject to separate compensation, but it must be taken into account in the assessment of the borrower’s credit rating (§§ 10.76–10.82);

– an explicit guarantee, that is, a specific contractual commitment by one entity within the group to act as guarantor for the debt of another entity. Such a guarantee justifies a fee only if it provides a real economic benefit to the beneficiary, beyond mere implicit support (§ 10.159).

In other words, if the borrower’s credit rating—once implicit support is taken into account—is already the same as that of the guarantor, the explicit guarantee provides no additional benefit and does not warrant compensation (§ 10.164).

When a fee is justified, it may not exceed the interest savings actually realized by the borrower as a result of the guarantee (OECD § 10.177). In practical terms, this is the difference between the rate the borrower would obtain without the guarantee (but with implicit support) and the rate obtained thanks to the explicit guarantee.

Pricing methods

The OECD identifies several methods:

–the yield approach (sections 10.174–10.177): this quantifies the benefit provided by the guarantee in terms of the reduction in the interest rate for the borrower. It is the method most frequently used in practice;

–the CDS (Credit Default Swaps, § 10.178)approach: this uses CDS spreads as a proxy for the cost of protection against default risk. It is appropriate when comparable CDSs are available, but comparability adjustments may be significant;

– the expected loss model (§ 10.181) and the capital adequacy model (§ 10.182), which estimate, respectively, the expected loss and the economic capital required to cover the guarantee risk.

Key Takeaways

Intragroup financing is subject to increasingly stringent scrutiny by tax authorities, both in France and abroad. Several points warrant particular attention:

– The choice of financing method must be consistent with the asset being financed and the borrower’s ability to repay, or else the transaction may be reclassified;

– Cash management should be limited to the short term, and the leader’s compensation should reflect their actual responsibilities and risks;

– The determination of an intragroup loan rate is based on a reliable scoring system and a well-calibrated benchmark, with documented and dated comparability adjustments;

– Remuneration for an intragroup guarantee is not automatically granted—it requires that the beneficiary derive a genuine benefit beyond the group’s implicit support.

In any case, the documentation must reflect this level of detail: specific contracts, detailed functional analyses, and up-to-date benchmark studies with accurate dates. Recent case law shows that judges no longer merely verify the method used—they scrutinize, parameter by parameter, whether its implementation accurately reflects the conditions of independent financing.

 

FAQ: Intra-group Financing and Transfer Pricing

What is the difference between the statutory rate under Article 39-1-3 of the General Tax Code and the arm’s-length rate?

The statutory rate under Article 39-1-3° of the General Tax Code (the annual average of the effective interest rates charged by credit institutions) constitutes the default deduction limit. Article 212-I-a of the CGI allows for a deduction exceeding this rate if the company demonstrates that the rate applied corresponds to the rate it would have obtained from an independent lender under similar conditions (arm’s-length rate). Until the 2026 Finance Act, this option to deduct at the market rate was limited to advances granted by shareholders holding control of the company (Article 212-I-a of the CGI in its previous version). Article 14 of the 2026 Finance Act now extends this option to advances granted by minority shareholders: any related entity within the meaning of Article 39, 12 of the CGI may now justify a rate higher than the statutory rate, provided it demonstrates that it corresponds to the market rate.

Does the interest rate on an intra-group loan need to be reviewed every year?

No. As with a fixed-rate bank loan, the rate is set at the time the loan is established and remains in effect for the entire term of the loan, unless there is a substantial change in the loan’s terms (amount, term, currency, collateral). However, the terms of cash pooling must be reviewed at least once a year.

Does the group's credit rating apply to all intragroup loans?

No. The starting point is the borrower’s standalone rating (its own financial situation at the time the loan is originated). The effect of group affiliation (implicit support) may then be taken into account to adjust this rating. The group’s consolidated rating does not replace the individual analysis of the borrower.

Does an intra-group guarantee always have to be compensated?

No. Remuneration for an intragroup guarantee is justified only if the guarantee provides a real economic benefit to the beneficiary, beyond the implicit support of the group. If the borrower’s credit rating, once the implicit support is factored in, is already identical to that of the guarantor, the guarantee adds no value and the fee is not justified. In any case, the fee is capped at the interest savings realized by the beneficiary.

 

 

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Article written by Marion Aguilar, founding attorney of TeaPea, a law firm dedicated exclusively to transfer pricing

[1]OECD Transfer Pricing Guidelines, 2022, Chapter X

[2]Growth Opportunities Act (Wachstumschancengesetz), 2024; administrative update from the Federal Ministry of Finance, December 12, 2024.

[3]Council of State, Joint 9th and 10th Chambers, December 20, 2024, No. 470557 – Légifrance: CETATEXT000050829882.

[4]OECD Principles 2022, Chapter X, §§ 10.109–10.148.

[5]Supreme Court (Spain), July 15, 2025, Bunge Ibérica

[6]Council of State, December 11, 2019, Siblu, No. 411189; Council of State, opinion, December 11, 2019, Wheelabrator, Nos. 429426 and 429428.

[7]Council of State, June 9, 2020, BSA, No. 433723; Council of State, November 23, 2022, Willink, No. 446669.

[8]Paris Administrative Court of Appeal, April 2, 2026, No. 24PA03322, SNC Défense Avenue (unpublished)

[9]Council of State, 8th Chamber, November 24, 2025, No. 490270, SAS Ferme PV1 (unpublished).

[10]Council of State, April 2024 – exact reference number of the appeal to be confirmed on Légifrance.

[11]Paris Administrative Court of Appeal, January 16, 2026, No. 24PA02156, Le Trema Holding France (unpublished).

[12]Paris Administrative Court of Appeal, April 2, 2026, No. 24PA04109, CA Traiteur et salaisons (unpublished)

[13]OECD Principles 2022, Chapter X, §§ 10.154–10.188.