Loan Agreement for Intercompany Debt

Summary

This template outlines the tax considerations of a loan agreement for an intercompany debt transaction. Practitioners can use the template in intercompany arrangements where one company is the borrower and another related company is the lender. This template can be used in both domestic and cross-border situations. This template contains practical guidance and drafting notes. A corporation must comply with certain tax and transfer pricing considerations when structuring intercompany debt transactions. The transactions must comply with U.S. transfer pricing rules, especially with respect to the arm's length standards of Treas. Reg. Section 1.482-2(a), the documentation requirements of the regulations under I.R.C. Section 385, and the characterization of the instrument as either debt or equity under case law, rulings, and I.R.C. Section 385. For a discussion on intercompany debt, see Structuring Intercompany Debt in C Corporations. Also see Paul Nylen, ARTICLE: THE HARRY POTTER REGULATIONS: THE MAGIC OF THE 385 REGULATIONS AND THE SUCCESSOR AND PREDECESSOR RULES, 18 Hous. Bus. & Tax L.J. 56 (2018) and Kailey Flanagan, NOTE: Cleaning Up After Chevron: A Proposed Cross-border Pipeline for the Transfer Pricing of Intra-group Debt Transactions, 56 Colum. J. Transnat'l L. 123 (2017).