WIRD to replace WIBOR

On 13 July 2022, the National Working Group (NGR) for reform of reference index was established. It was tasked with introducing a new interest rate reference index in place of WIBOR. The NGR features, among others, the representatives of te Ministry of Finance, the Bank Guarantee Fund (BFG), the Polish Development Fund (PFR), Warsaw Stock Exchange (GPW) and the largest commercial banks. WIRD, WIRF and WRR are among the potential reference index to replace WIBOR.

On 2 September 2022, the NGR Steering Committee decided to replace WIBOR with WIRD as an alternative reference index for the interest rate – based on ON (overnight) transactions data. One of the supporting arguments was the fact that WIRD takes into account a wide range of information and is not limited to financial sector institutions. It also covers data from the large enterprise sector as well as the volume of deposit transactions. NGR continues working on a roadmap and an optimal process for changing the reference index – bearing in mind the security of the financial market.

The new reference index may be applicable already in 2023. However, based on the experience of reforming other reference indexes, such as LIBOR, we should expect the entire change process to take up to 2 years. It is also possible that WIBOR and WIRD will function in parallel for some time.

What does it mean for the taxpayers?

Gradual withdrawal of WIBOR while simultaneously introducing WIRD ushers in significant changes in the banking sector and in financial transactions made between related entities.

Taxpayers will have to change the approach in terms of applying the reference index, in particular for financing agreements signed after WIRD is introduced. In addition, it will be necessary to analyze the current financial agreements and, where appropriate, make annexes to long-term WIBOR-based financial agreements, including loan/credit agreements or cash pooling arrangements. Therefore, the possibility of changing the reference index should be analyzed and a change strategy developed before WIBOR is finally withdrawn.

Taxpayers belonging to capital groups should also consider the change or adjustment of transfer pricing policy with regard to financial transactions. In some cases, recalculation may be necessary of the interest based on WIBOR as well as the one based on WIRD. To this end, it may be necessary to once again prepare benchmarking analyses to confirm the arm’s length remuneration adopted in an intra-group transaction.

Summary

In practical terms, the NGR Steering Committee’s decision to replace WIBOR by WIRD means taxpayers will need to analyze the rationality and possibility of changing the reference index in financing agreements and to develop an appropriate strategy for newly-made and older financial agreements. In the case of transactions with related entities, it may be necessary to prepare new benchmarking analyses to justify compliance with the arm’s-length principle. In addition, changes might be required in the wording of intra-group financing agreements. It may also be necessary to verify and adjust the transfer pricing policy in the field of financial transactions.