![]() Swedish interbank rates and the implied intercompany rate: January 2003 to June 2008 The STA position that the original contract should have been honoured would logically imply a 2 percent transfer pricing adjustment, and not the 2.5 percent adjustment proposed by the STA, as the original contract contemplated adjustments to the intercompany interest rate as short-term market rates adjust. Note, however, that this higher intercompany interest rate represented a new loan margin: 3.5 percent. The facts in this litigation suggest that under the new intercompany contract, the intercompany interest rate was 2.5 percent higher than the original intercompany interest rate or 7.65 percent. Under the original contract, the intercompany interest rate would be 5.65 percent as of June 2008. From early 2005 through June 2008, market rates rose with STIBOR reaching 4.15 percent by June 2008. Over the next two years, market rates declined. Our graph shows the intercompany interest rate under the original intercompany agreement as the interbank rate plus 1.5 percent. If the intercompany loan margin was 1.5 percent, then the original intercompany interest rate was 5.15 percent. This rate was 3.65 percent as of January 2003. The graph below shows the Swedish 3-month interbank interest rate (STIBOR) from January 2003 to June 2008. Market rates as of January 2003 and June 2008 ![]() Mikael Jacobsen, Malin Andersson and Janina Hägg recently discussed this litigation in terms of the implications for intercompany agreements. The Supreme Court upheld the Court of Appeal’s decision on June 7, 2016. An independent party had not agreed on such an amendment to the agreements. The Swedish Tax Agency has thus shown that the company entered into an agreement with a related company which – in relation to the agreement that then ran between the parties – was unfavorable to the company, without other contract terms justifying it and without any compensation for the changed terms. There is nothing to show that the 20 agreements differ in such a way that it was commercial for the company to commit to continuing to pay a higher interest rate through the later agreements. ![]() As far as can be seen, according to the 2003 agreement, there was no right for the lender to adjust the interest rate and the 2008 agreement was thus unfavourable for the company. ![]() The 2008 agreement meant that the company had to pay a higher interest rate than it would have had to do in 2003 agreements continue to apply. When contracting parties who are close to each other have an agreement and renegotiate the terms of it or replace it with another, the examination against the correction rule shall refer to how independent parties had acted given that they had the contractual relationship of the related parties. The Court of Appeals stated the following: The STA appealed to the Court of Appeals, which upheld the STA’s original transfer pricing adjustment. It ruled in favour of the taxpayer, arguing that the 2008 agreement was consistent with market rates. Nobel Biocare appealed to an administrative court. The Swedish Tax Administration (STA) accepted this 1.5 percent loan margin as arm’s length, but objected to a June 2008 change in the agreements which increased the intercompany interest rate by 2.5 percent. The original agreements were based on the Stockholm Interbank Offered Rate (STIBOR) plus a 1.5 percent loan margin. The relevant agreements were long-term, with maturities ranging from 15 years to 30 years, but were also floating rate agreements. 45) involved a set of January 2003 intercompany loans from the Netherlands Antilles affiliate of Nobel Biocare Holding AG to Nobel Biocare Holding AB, a Swedish operating affiliate. Nobel Biocare Holding AB, and highlights its main implications. (You may also remember him from another blog he wrote for us about the implications of the demise of LIBOR.) Here he examines the recent judgment in the case Sweden vs. This is a guest post by Harold McClure, a New York City-based independent economist with 26 years of transfer pricing and valuation experience.
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