Effect of group membership on arm’s length interest rate on intragroup loans (Chief Counsel legal advice memorandum)
Legal advice memorandum from the Office of Chief Counsel
Effect of group membership on arm’s length interest rate on intragroup loans
The IRS publicly released a legal advice memorandum* (from the Office of Chief Counsel) concerning the IRS’s position on the effect of group membership in determining the arm’s length rate of interest chargeable for intragroup loans under section 482.
The IRS concluded that if an unrelated lender would consider group membership in establishing financing terms available to the borrower (i.e., “implicit support”) even in the absence of a formal guarantee, then the IRS may adjust the interest rate in a controlled lending transaction to reflect that implicit support. The memorandum includes an example in which accounting for implicit support decreased the interest rate to be paid by a U.S. subsidiary of a foreign-parented group.
The IRS also clarified that its analysis would apply equally in the context of loans between controlled parties with relationships other than parent-subsidiary (e.g., between sister subsidiaries of a corporate group) which might include implicit support from the group, including from the lender.
Read AM 2023-008 [PDF 238 KB] (release date of December 29, 2023, and dated December 19, 2023)
* Legal advice memoranda are signed by executives in the National Office of the Office of Chief Counsel and issued to Internal Revenue Service personnel who are national program executives and managers. The memos are issued to assist IRS personnel in administering their programs by providing authoritative legal opinions on certain matters, such as industry-wide issues. The memos cannot be used or cited as precedent.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.