At first glance, the transfer of intragroup financing may appear to be a transaction with negligible stakes. Yet, in a financial environment characterized by high volatility and increased scrutiny by French tax authorities of intragroup financial transactions, it requires particular attention to manage the tax implications, secure the fair market value, and thus prevent the risk of tax reassessment.
Managing Tax Impacts
Any gain (or loss) realized from the transfer of a loan or receivable by a French company subject to corporate income tax must be included in the transferor’s taxable income for the fiscal year in which the transfer occurs. This amount is determined by the difference between the transfer price and the nominal value of the loan (or the acquisition price if the loan was previously repurchased). It is also important to note that such transactions are exempt from VAT and registration duties.
In most cases, intra-group loan transfers between two entities within the same group are executed at their nominal value. However, these transactions should, like any other asset, be conducted at their fair market value. Failure to do so may lead the tax authorities to identify an abnormal act of management. For example, in the case of a transfer at a reduced price, the authorities may, on the one hand, increase the taxable income of the transferring company and, on the other, impose tax on the acquiring company as if it had received a deemed distribution. Such a situation could result in a double tax adjustment for the same transaction. In an international context, this indirect transfer of profits abroad may also be treated as a distributed income subject to withholding tax, subject to the provisions of applicable tax treaties.
By way of exception, the repurchase by a debtor of a loan at a price below its nominal value will be analyzed as a financial debt waiver. As a general rule, such assistance is non-deductible for the company granting it and constitutes taxable income for the beneficiary.
Furthermore, proof of the transfer of the receivable requires special vigilance. In France, this operation must be notified to the borrower. Failure to do so may lead the tax authorities to consider the transfer as unenforceable against the debtor, treating it as a debt waiver in favor of the debtor.
Valuing the Intra-Group Loan
Valuation lies at the heart of tax issues. This assessment, conducted as of the transfer date, is therefore of fundamental importance for securing these transactions. As with any debt instrument, the borrower’s credit risk, the remaining maturity, and—more broadly—the terms and conditions of the financing, as well as changes in market interest rates, have a decisive impact on its fair market value. In this regard, the sharp rise in interest rates since 2022, the increase in credit spreads (particularly pronounced for speculative-grade borrowers), and the deterioration in the credit quality of certain companies are all factors significantly affecting the valuation of intra-group financing.
To perform this valuation, the choice of method depends primarily on the borrower’s ability to pay all interest and principal according to the agreed terms. If this assumption seems unlikely, the net recovery approach or the liquidation approach — using a waterfall analysis — allows for the subtraction of the value of various debts, based on their seniority and the existence of any collateral, to determine the residual value of the loan. Conversely, if the borrower appears capable of meeting its obligations, a discounted cash flow method should be used.
This approach first involves projecting the cash flows generated by the loan over its remaining maturity until full repayment, in accordance with the interest payment schedule for each period and the principal repayment profile. It then requires determining the appropriate discount rate(s).
These discount rates can be derived through a process similar to determining an arm’s length interest rate for intra-group financing. This involves observing, based on the borrower’s credit risk (expressed through its credit rating) and the loan’s key characteristics — such as its seniority and the presence or absence of collateral — the market interest rates for comparable financings concluded between independent borrowers and lenders.
Preparing for Tax Audits
Intra-group financings are one of the main focuses of the French tax authorities’ audit policy for international groups. It is therefore essential to carefully prepare all financial analyses that contributed to determining the transfer price. This attention is all the more necessary as the discrepancy between the nominal value of an intra-group loan and its transfer price may raise questions from the tax authorities.
Additionally, in the case of a loan transfer at a discounted price, the French tax authorities sometimes argue — when challenging the deductibility of the loss in the transferor’s taxable income — that such a transfer could be assimilated to a financial debt waiver. However, this position is incorrect, as the assigned debtor remains fully liable for the nominal amount of the receivable.
Article co-authored by Théophile Trancart and Florian Tumoine, published in La Lettre du Trésorier (December 2025). This journal is published by the French Association of Corporate Treasurers (AFTE).