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An analysis from STI Taxand, Taxand Cyprus
The OECD’s 2025 update to the Model Tax Convention Commentary on Article 9 strengthens the link between tax treaties and the accurate delineation principles contained in Chapter X of the OECD Transfer Pricing Guidelines, with important implications for multinational groups using cross-border debt financing.
The updated approach reinforces that the characterisation of an intra-group financial transaction comes before its pricing. Where the economic substance indicates that an independent party would not have provided the same level of debt, tax authorities may seek to recharacterise excessive debt as equity. This can also affect treaty benefits on related interest payments and means that compliance with mechanical thin capitalisation or earnings-stripping rules may not, by itself, establish compliance with transfer pricing requirements.
Christos Theophilou from our Cypriot member firm, STI Taxand, examines how the OECD update changes the analysis of multinational capital structures and why robust transfer pricing analysis of intercompany financing is increasingly important, which you can read here.
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