• Geopolitical and regulatory shifts - including neo-mercantilist policies and BEPS 2.0—are reshaping global tax norms, compelling multinational treasury teams to rethink intercompany financing structures and align them with economic substance and value creation.
   
• Transfer pricing and intercompany lending now demand rigorous documentation, market-based justifications, and compliance with increasingly complex and divergent international standards, especially around interest rates, risk assessments, and functional substance.
   
• Strategic treasury planning must integrate indirect tax considerations, adapt to real-time reporting requirements, and proactively model the impact of global tax reforms, while ensuring that financing arrangements are commercially defensible and operationally resilient.

In recent years, the global tax landscape for multinational corporations has undergone significant transformation, driven by both regulatory changes and geopolitical shifts. As nations increasingly embrace neo-mercantilist policies that prioritise domestic economic interests; corporate treasury and tax teams face mounting complexities in managing intercompany financing arrangements. Let us examine how the evolving geopolitical climate affects transfer pricing, intercompany lending, and cross-border corporate structures, while offering strategic considerations for navigating this evolving environment.

The resurgence of economic nationalism and its tax implications

The post-pandemic world has witnessed a notable shift away from globalisation toward economic nationalism. Major economies are implementing policies designed to reshore critical industries, secure supply chains, and protect domestic tax bases. This neo-mercantilist approach has profound implications for corporate tax planning. Tax authorities are increasingly aggressive in questioning the commercial rationale behind intercompany financing structures, particularly those involving low-tax jurisdictions. Countries are implementing digital services taxes, minimum tax regimes, and other unilateral measures outside traditional international frameworks, creating potential double taxation risks. Governments are limiting the flow of critical intellectual property and technology across borders, affecting transfer pricing models built around IP licensing structures. For treasury and tax professionals, these shifts necessitate a more nuanced approach to intercompany transactions that balances tax efficiency with growing political and regulatory risks.

BEPS 2.0: the transformative impact on treasury operations

The OECD's Base Erosion and Profit Shifting (BEPS) initiative has evolved into what many practitioners call "BEPS 2.0," centered on two pillars that fundamentally reshape international taxation.

• Pillar One reallocates taxing rights to market jurisdictions where customers are located, regardless of physical presence. This challenges traditional models where profits flow to IP-holding entities in favourable tax jurisdictions. 
   
• Pillar Two establishes a global minimum corporate tax rate (effectively 15%), significantly limiting the benefits of profit shifting to low-tax jurisdictions and potentially rendering many existing treasury structures obsolete. Corporate treasury functions must now reconsider centralised financing hubs in low-tax jurisdictions, cash pooling arrangements that concentrate group liquidity, IP holding company structures that drive royalty payments, and captive insurance operations that manage group risk. 

Each of these traditional treasury tools requires recalibration in light of these fundamental changes to the international tax architecture.

The growing complexity of arm's length requirements

Intercompany lending and transfer pricing documentation requirements have grown increasingly sophisticated. Tax authorities now expect comprehensive functional analyses demonstrating the economic substance behind treasury activities, quantitative support for interest rates using actual market comparables, documentation of decision-making processes around capital allocation, and evidence of risk management capabilities within financing entities. The old approach of applying a simple markup to intercompany services or setting arbitrary interest rates on intercompany loans is becoming gradually unviable. Instead, treasury teams must adopt methods that withstand heightened scrutiny, including credit rating methodologies that objectively assess borrower risk profiles, term structure analyses that properly account for loan duration, consideration of subordination, collateral, and other credit enhancements, and adjustments for currency risk and local market conditions. This complexity is further compounded by divergent interpretations of arm's length principles across jurisdictions, creating compliance challenges for centralised treasury operations.

Global Loans data by Borrower Ultimate Parent’s Nation – Source: LSEG Workspace

Moody’s and S&P Credit Rating of Debt issued – Source: LSEG Workspace

VAT, withholding tax, and cross-border fund movement

Value-added tax (VAT) and withholding tax (WHT) considerations often receive insufficient attention in treasury planning, yet they significantly impact the efficiency of cross-border fund movements. WHT on interest payments can erode the benefits of intercompany financing if treaty networks are not optimally utilised. VAT on management services between group entities creates both compliance burdens and potential cash flow disadvantages. Financial transaction taxes in certain jurisdictions may apply to intercompany funding operations. Digital service taxes increasingly capture treasury and financing services provided cross-border. Effective treasury structures must balance these indirect tax considerations alongside corporate income tax planning. The compliance burden has grown as authorities implement real-time reporting requirements and digital audit capabilities that expose inconsistencies in cross-border transactions.

Real-time Deposit Rates for financing benchmarks – Source: LSEG Workspace

Strategic recommendations for treasury and tax teams

In this challenging environment, corporate treasury and tax functions should consider these strategic approaches:

• Align financing with value creation: ensure intercompany lending structures reflect where substantive business activities occur and value is created, not simply where favourable tax rates exist.
• Reconsider centralised models: while cash pooling and financing hubs offer efficiency, they create concentration risk in the current environment. Consider more distributed models that align with operational footprints.
• Prioritise substance over form: focus on establishing genuine commercial rationale and economic substance for treasury locations, with appropriate staffing and governance.
• Develop robust documentation practices: create contemporaneous documentation of transfer pricing policies, including functional analyses that demonstrate the value added by treasury operations.
• Model tax reform impacts proactively: use scenario planning to assess how proposed tax reforms might affect existing structures, allowing time for thoughtful restructuring.
• Engage with policymakers: where appropriate, participate in consultation processes to ensure policymakers understand the practical implications of proposed tax changes on legitimate business operations.

Private Company Analytics to assess and document credit ratings of private subsidiaries – Source: LSEG Workspace

Going beyond traditional planning

The shifting global tax landscape reflects broader geopolitical tensions and the resurgence of economic nationalism. Corporate treasury and tax teams face unprecedented complexity in managing intercompany arrangements while navigating competing national priorities. Success requires moving beyond traditional tax planning to develop financing structures that balance efficiency with resilience in an increasingly fragmented global tax system. By aligning treasury operations with substantive business activities and maintaining robust documentation, corporations can establish sustainable approaches to intercompany financing that withstand heightened scrutiny while supporting legitimate business objectives.

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