Are you ready for the
IBOR Transition?
The cessation of the issuance of the various Interbank
offered rates (‘IBORs’) as from 1 January 2022 may
cause disruptions to the financing structures of groups
from a finance, accounting, legal, and tax perspective.
Following the cessation of IBORs, the market is generally
expected to use Alternative Reference Rates (‘ARRs’ or
Alternative Nearly Risk-Free Rates - ‘RFRs’).
Tax and Transfer Pricing Considerations
The transition from the IBORs to ARRs is expected to
affect various intragroup financial instruments with IBORs
reference, such as debt instruments (e.g. loans) and
financial derivatives.
Businesses are encouraged to evaluate the implications of
the IBOR transition in their financial instruments and
securities and take any actions to remedy any potential
tax exposures.
Specifically, companies should evaluate whether any of
their financing agreements reference IBORs after 31
December 2021 and consider the documentation
requirements in the context of the transition. In case
fallback clauses are available in the existing agreements,
the rates should be reviewed or determined (as
appropriate), including any additional spreads that may
apply under arm’s length conditions. Moreover, Transfer
Pricing policies on group financing, may need to be
reassessed in the light of the above.
Legal considerations
Companies and financing institutions are required during
the IBOR transition to adopt new ARRs, which creates
major legal challenges for financial institutions and other
organizations on how to implement those ARRs whilst
ensuring their financing arrangements’ continuity and
compliance with financial covenants, reporting and other
such obligations.
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References to IBOR are embedded far and wide in the
contracts of every financial institution, including
commercial loans, syndicated loans, home mortgages, and
derivatives.
The inability to address contractual challenges may result
in adverse consequences for firms including financial,
legal, conduct and reputation risk. Further, there may be
disputes or litigation risk arising out of the existing
contractual documentation (legacy contracts, reliance on
uncertain fallback clauses) or out of the repapering
exercise.
Accounting considerations (IFRS)
On 27 August 2020 the International Accounting
Standard Board (IASB) published amendments to a
number of its standards to address the accounting issues
that arise from the transition to RFRs.
These amendments provide reliefs from accounting
consequences resulting from the transition, among others
considerations on continuation of hedge accounting and
discussions around modifications of contractual cash
flows.
The amendments also introduce a number of disclosure
requirements to enable users to understand:
• How the entity is managing the transition, its progress
and the risks to which it is exposed arising from the
financial instruments due to the IBOR reform,
• The potential impact by providing quantitative
information about financial instruments that have yet
to transition to RFRs, and
• Whether the IBOR reform has given rise to changes in
the entity’s risk management strategy.
The effective date is for annual periods beginning on or
after 1 January 2021, with earlier application is
permitted.
 How EY may assist

Transfer Pricing Legal support

EY may assist in reviewing your intercompany financing EY Law can assist in reviewing both intercompany as
and derivative agreements from a Transfer Pricing well as third party financing agreements to identify the
perspective in order to identify potential risks and provisions that require bespoke drafting or amendment
exposures that may arise from the cessation of the and replacement. Our all-round support includes:
IBOR used. Moreover, where required, we may assist
• Contract planning, review, data extraction;
with the identification of the relevant arm’s length • Client outreach and negotiation;
conversion of the rates to be used. • Playbook and template development;
• Contract drafting and execution;
Where groups have prepared Transfer Pricing planning • Post-execution due diligence and administration.
policies, EY may review such policies for potential
exposures, as well as assist with updating any relevant Financial Accounting Advisory Services
benchmarking and preparing a defence file for the
position taken. EY can support with the accounting challenges linked to
the transition to RFRs, in particular with those arising
Our six step recommended approach: from the assessment on continuation of hedge
accounting, the potential modifications of contractual
cash and related disclosures.
1 2
Review such
Consider all financial Our Credentials
contracts to determine
assets that may give
fallback language/
rise to exposures
amendments required
Our highly qualified experts in the Tax, Transfer Pricing,
Legal, and Financial Accounting principles, with
expertise in financial transactions, can assist you with
3 4
Review/Incorporate the preparation of a tailored approach to evaluate
Prepare/update any
ARR to be used in the
necessary benchmarks potential exposures and suggested way forward.
contract

5 6
Assist with updating Prepare a defence file
the relevant contracts for the position taken

Feel free to reach out to us for any additional information at the below addresses:

Charalambos Palaontas
Associate Partner, Head of Transfer Pricing Services
Charalambos.Palaontas@cy.ey.com

Pantelis Pavlou
Director – CESA IFRS Desk
Pantelis.Pavlou@cy.ey.com

Andria Koukounis
Director, Financial Services and Capital Markets, EY Law
Andria.Koukounis@cylaw.ey.com

This material has been prepared for general informational purposes only and is not intended to be relied upon as any
professional advice. EY will not be liable for any losses suffered as a result of any acts or omissions prompted by this
material. Please refer to your advisors for specific advice.