In some intra-group transactions, the cost of funds approach may be used to price loans where capital is borrowed from an unrelated party which passes from the original borrower through one or more associated intermediary enterprises, as a series of loans, until it reaches the ultimate borrower. In such cases, where only agency or intermediary functions are being performed, as noted at paragraph 7.34, “it may not be appropriate to determine the arm’s length pricing as a mark-up on the costs of the services but rather on the costs of the agency function itself.” ...

In some intra-group transactions, the cost of funds approach may be used to price loans where capital is borrowed from an unrelated party which passes from the original borrower through one or more associated intermediary enterprises, as a series of loans, until it reaches the ultimate borrower. In such cases, where only agency or intermediary functions are being performed, as noted at paragraph 7.34, “it may not be appropriate to determine the arm’s length pricing as a mark-up on the costs of the services but rather on the costs of the agency function itself.” ...

A Trust submitted a tax return for 2014 in which an asset loan to the C Trust in the amount of USD 5,393,695 (GBP 3,459,175) and a liability loan to the D Foundation in the amount of USD 7,715,134 (GBP 4,948,000) had been declared. Neither interest income nor interest expense was recognised or declared in respect of the loans, which were interest-free. A Trust reported a net loss of USD 112,870. The tax administration issued an assessment in the amount of USD 241,172, which resulted in taxable net income of USD 188,423 and income taxes of CHF 23,403, in addition to other tax adjustments. The adjustment of USD 241,172 was justified by the fact that the interest-free loan to C was subject to interest of 4.5% under the application of the arm’s length principle. According to Lichtenstein’s arm’s length guidance, in the case of non-interest-bearing or low-interest-bearing loans to related parties, a minimum interest rate is set out in an information sheet (in this case 4.5% for GBP) which should be applied to the loan and the difference between the effective interest income and the interest income that would be generated with an interest rate corresponding to the arm’s length principle should be calculated as income. An appeal was filed by A Trust with the Administrative Court. In its judgment of 09 February 2018, VGH 2017/126, the Administrative Court dismissed the appeal and confirmed the contested decision. An complaint was then filed with the Constitutional Court for violation of constitutional rights and rights guaranteed by the ECHR – Convention from November 1950 protecting basics freedom rights which entered into force in Liechtenstein in September 1982. Judgement of the Constitutional Court The Court dismissed the complaint. A Trust’s constitutional rights and rights guaranteed by the ECHR had not been violated by the contested judgment of the Administrative Court. Click here for English translation Click here for other translation ...

A Trust submitted a tax return for 2014 in which an asset loan to C Trust in the amount of USD 5,393,695 (GBP 3,459,175) and a liability loan to the D Trust in the amount of USD 7,715,134 (GBP 4,948,000) had been declared. Neither interest income nor interest expense was recognised or declared in respect of the loans, which were interest-free. A Trust reported a net loss of USD 112,870. The tax administration issued an assessment in the amount of USD 241,172, which resulted in taxable net income of USD 188,423 and income taxes of CHF 23,403, in addition to other tax adjustments. The adjustment of USD 241,172 was justified by the fact that the interest-free loan to C was subject to interest of 4.5% under the application of the arm’s length principle. According to Lichtenstein’s arm’s length guidance, in the case of non-interest-bearing or low-interest-bearing loans to related parties, a minimum interest rate is set out in an information sheet (in this case 4.5% for GBP) which should be applied to the loan and the difference between the effective interest income and the interest income that would be generated with an interest rate corresponding to the arm’s length principle should be calculated as income. An appeal was filed by A Trust with the Administrative Court. In its judgment of 09 February 2018 the Administrative Court dismissed the appeal and confirmed the contested decision. Click here for English translation Click here for other translation ...