The arm's length principle, as endorsed in OECD guidance and applied in UK transfer pricing legislation (INTM432010 onwards), applies to the lending and borrowing of money just as it applies to the purchase and sale of goods and the provision of services. Article 9 of the OECD Model Tax Convention says that the arm's length principle should be applied where:

‘…conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises’

and this obviously includes the provision of funding.

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