Intra-bank loans : determining a branch's business profits under Article 7 of the OECD Model

Examines the current OECD rules in Art. 7 and the Commentary and in the 1984 Report on the deductibility of interest on intra-bank loans. The article first examines the problem of allocating profits on intra-bank loans to branches in accordance with the arm's length principle. The article then considers three key issues in resolving the main question of whether interest on intra-bank loans is deductible: (a) whether the interest expense on intra-bank loans is recognized for tax purposes, (b) whether an international bank can impose a profit margin on notional intra-bank loans, and (c) how to determine the equity capital of a branch to ensure that interest is not charged on it.