Financing & treasury
Back-to-back loan
A back-to-back loan involves an intermediary group entity borrowing funds, often externally or from another group company, then on-lending those same funds to a related borrower on separate terms, meaning the arrangement effectively creates two distinct financing legs that each require their own independent arm's length pricing.
The intermediary's margin between the two legs should reflect the functions it performs and risks it bears, such as currency mismatch, credit risk on the ultimate borrower, or genuine treasury coordination, rather than an arbitrary spread that exists purely to shift profit between jurisdictions without any real economic.
Tax authorities often scrutinise back-to-back structures closely, questioning whether the intermediary has sufficient substance, capital and decision-making capability to justify retaining any margin at all, and whether the structure was primarily designed to access more favourable treaty rates or a preferential jurisdiction's.
In practice
What matters when applying back-to-back loan
- Price each leg of the structure independently
- Justify the intermediary's margin with real functions and risk
- Confirm the intermediary has genuine substance and capital
- Check the commercial rationale beyond tax treaty access
- Document risk allocation between the two lending legs
Frequently asked
Common questions
Why does a back-to-back loan need two separate pricing analyses?+
Because it effectively creates two distinct financing legs, an inbound and an outbound loan, each requiring its own arm's length rate reflecting the specific terms and risks of that individual leg.
What attracts tax authority scrutiny in these structures?+
An intermediary retaining a margin without sufficient substance, capital or genuine risk-bearing capacity, particularly where the structure appears designed mainly to access favourable treaty rates.
See how the tooling handles this in practice
Our transfer pricing tools calculate intercompany charges, benchmark financing and reconcile the intercompany ledger from your own data. Book a short walkthrough and we will show the workflow on a scenario that matches your group structure, rather than a generic demo dataset.