Transfer pricing and the end of LIBOR rates

In2022, LIBOR basis rates are no longer being used, and this has consequences involving the regulations governing the use of the financial safe harbour mechanism.
Author:
Piotr Skłodowski
Junior Transfer Pricing Specialist

With the new year 2022, LIBOR basis rates are no longer being used, and this has consequences also in the field of transfer pricing, more precisely involving the regulations governing the use of the financial safe harbour mechanism. This is linked with abandonment of the use of the set of LIBOR basis rates in global commerce.

LIBOR (the London Interbank Offer Rate) was one of the main benchmarks for interest rates applied on the international financial market. It constituted the average rate at which banks could take out interbank loans.

In many instances, LIBOR served as the basis for financial transactions such as credit, loans and bonds. In 2017 the UK Financial Conduct Authority decided to cease applying LIBOR as of the beginning of 2022.

The Polish Minister of Finance published a decree on 21 December 2021 announcing the type of reference interest rates and margins for purposes of transfer prices for personal income tax and corporate income tax (Monitor Polski 2021 item 1192). The decree updates the conditions that must be met by a taxpayer wishing to apply the safe harbour for financial transactions (loans, credit, bonds). New basis rates have thus been implemented (replacing LIBOR), applicable to financial transactions concluded in:

  • Swiss francs
  • US dollars
  • British pounds.

The basis rates applied through the end of 2021 may serve as the basis rate for loans granted prior to 1 January 2022 for which the taxpayer wishes to apply the financial safe harbour mechanism.

For loans concluded from 2022 onward, the new basis rates must be applied.

The new basis rates are presented in the table below.

Basis rate applied through the end of 2021Basis rate applied from the start of 2022
LIBOR CHF 3MSARON 3M Compound Rate
LIBOR USD 3MSOFR 3M Compound Rate
LIBOR GBP 3MSONIA 3M Compound Rate

For financial transactions in Polish zloty or euro, the basis rates applied under the financial safe harbour mechanism remain unchanged, as follows:

  • For PLN, WIBOR 3M
  • For EUR, EURIBOR 3M.

The decree of 21 December 2021 also revised the maximum level of the borrower’s margin in applying the financial safe harbour mechanism.

The maximum margins for transactions between related entities wishing to apply the financial safe harbour mechanism are presented in the table below.

 Maximum margin for financial transactions under the financial safe harbour mechanism
PartyThrough the end of 2021From the start of 2022
Borrower2.3 pp2.8 pp
Lender2.0 pp2.0 pp
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