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In all cases when determining whether a loan is on arm's length basis, HMRC will look at how much, if any, of the loan would have been made had the companies been independent, and review the rate of interest and loan terms to those independent parties would have agreed¹.

HMRC provides detailed guidance on transfer pricing and loans in INTM413000 and INTM510000 and this is summarised below. The OECD Transfer Pricing Guidance on Financial Transactions was issued in February 2020 and was developed as part of Actions 4 and 8-10 of the BEPS Action Plan². This guidance has now been incorporated into the OECD Guidelines 2022, Chapter I, D.1.2.2 and Chapter X and is summarised in B4.150A.

In Blackrock³, the Upper Tribunal had, inter alia, disallowed the company's non-trading loan relationship debits under the transfer pricing rules. This was on the basis that an independent arm's length lender would not have lent without covenants from parties in addition to the borrower, and the Upper Tribunal held that third party covenants that were