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Back-to-Back Loan |
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Back-to-Back Loan A loan in which two companies in different countries borrow offsetting amounts from one another in each other's currency. The purpose of this transaction is to hedge against currency fluctuations. With the advent of currency swaps this type of transaction is no longer used very often. Notes: In a back-to-back loan, a U.S. company would loan US$1000 to a U.K. company in the U.S., and the U.K. company would loan an equivalent amount (at spot exchange rates) in sterling to the U.S. firm in the U.K. Both companies get the currency needed without going to the forex market.Back-to-back loan |
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| The earlier decisions were very taxpayer-favorable, indicating that the Tax Court had changed its attitude on back-to-back loan restructuring between related entities. Arrangements the IRS can recharacterize include debt guarantees and equity investments as well as back-to-back loans. Moreover, the regulations establish a presumption (which can be rebutted by the taxpayer only by "clear and convincing" evidence) that the intermediate party would not have participated without the back-to-back loan from the financing entity if the financing entity also guarantees the liability of the borrower to the intermediate party. |
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