Into the Maze of Intercompany Loans

A cryptic IRS memo, General Legal Advice Memorandum (GLAM), is upending the lending landscape for global corporations. Its reinterpretation of the “arm’s-length” rule for internal loans throws them into a web of ambiguity.

The issue? Parental support for subsidiaries in loan deals. GLAM acknowledges lower rates are warranted, but critics fault its neglect of parent costs. This perceived imbalance raises eyebrows about fairness and consistency.

Hypothetically, a subsidiary secures an external loan. Factoring in parental support, GLAM prescribes a lower rate. While aligned with the principle, in theory, omitting parent costs raises red flags.

GLAM’s selective application fuels uncertainty, leaving corporations vulnerable. Proactive measures are key – meticulous documentation and compelling narratives demonstrating adherence to the rule are crucial to mitigate potential tax risks.

Though non-binding, GLAM serves as a stark reminder of the inherent challenges of transfer pricing. Until further guidance emerges, corporations must navigate this uncertain terrain with careful transfer pricing procedural applications and documentation.

Contact our Global Business Services team for more information on GLAM or other international tax issues.