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ARTICLE · 02 JUNE 2021

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IBOR Transition - Transfer Pricing Implications And Considerations

Ernst & Young Cyprus Ltd
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By the end of 2021, it is expected that the transition of multiple Interbank Lending Rates (‘IBORs'), including the London Interbank Offer Rate (‘LIBOR'), will take place.

CyprusTax
Charalambos Palaotas
Charalambos Palaotas
Timotheos Ioannou
Timotheos Ioannou
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By the end of 2021, it is expected that the transition of multiple Interbank Lending Rates ('IBORs'), including the London Interbank Offer Rate ('LIBOR'), will take place. These IBORs are expected to be replaced, to an extent, by Alternative Reference Rates ('ARRs'). There are multiple implications in the financial systems that may arise as a result of these transitions. The potential impacts on the Transfer Pricing practice will be examined below.

Taking into account the timeframe for the transition from the IBORs to the ARRs, it is important to identify and analyze the impact of the transition to risk-free rates ('RFRs') to lenders and borrowers alike.

Overview

In the United Kingdom ('UK'), the Bank of England has been working to ensure a transition from LIBOR to the Sterling Overnight Index Average ('SONIA'), a rate produced by the Bank of England. SONIA reflects the average of the interest rates that banks pay to borrow sterling overnight from other

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