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💳 Lending Clarity: Watsons Proves Arm’s Length is Deliverable

August 21, 2025

Extended Background

Retail MNEs need working capital, often sourced via intercompany loans. Watsons structured group financing based on actual third-party bank offers, defending this as market-standard. Malaysian revenue authorities, fearing base erosion, frequently challenged group loan rates as too low before recent financial transaction guidelines.

Detailed Arguments

Taxpayer

  • Produced contemporaneous bank loan quotes and detailed risk assessments as the arm’s-length basis for their group loan rates.

  • Defended full deductibility and economic rationale for the interest applied.

Revenue

  • Attempted to force higher, “protective” rates despite lack of market comparables.

Court Reasoning

  • Ruled for Watsons: market-based interest, properly documented, fulfills arm’s-length requirements.

Procedural Journey

  • Dispute moved from audit to litigation, resolved in Watsons’ favor with full expense deductibility restored.

Implications Beyond the Case

  • MNEs in Malaysia are now safer using actual loan offers and risk data—statistical “rate padding” by tax authorities is less defendable.

Original Case Link:

Tax Risk Management
Editorial Note:

Official judgments are always best linked to directly from court or sovereign government sites (PDFs or HTML), or through leading law firm/academic sources with appropriate commentary and official citations. Cases without direct links either are not fully published due to confidentiality or are referred to trusted legal commentaries.

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