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Elon Musk has agreed to settle a $128m (£100m) lawsuit brought by four former top executives at Twitter, now X, over unpaid severance when he took over the company.

The executives, who include former chief Parag Agrawal, argued that Mr Musk fired them “without reason” after he bought Twitter in 2022 and denied them severance payments.

“The parties have reached a settlement and the settlement requires certain conditions to be met in the near term,” attorneys for the plaintiffs wrote in a court filing last week. They did not disclose the terms of the settlement.

The suit, filed last year, is one of several legal challenges over unpaid severance for workers who were laid off after Musk took over.

Lawyers for the former Twitter executives, and for Mr Musk and X, did not immediately respond to requests for comment on the settlement.

The former top brass – Mr Agrawal, former chief financial officer Ned Segal, former chief legal officer Vijaya Gadde and former general counsel Sean Edgett – contended in their lawsuit that they are owed one year’s salary and stock awards, under a years-old severance plan.

They also said Musk’s move was part of a pattern of refusing to pay former staff what they were due.

In August, Mr Musk and X agreed to settle a separate lawsuit filed by roughly 6,000 former rank-and-file Twitter employees who argued they were owed $500m in severance pay.

Mr Musk purchased Twitter in 2022 for $44bn, after initially trying to back out of his offer. After the acquisition closed, he immediately moved to fire top leaders at the company, including the four executives. Mr Musk slashed Twitter’s workforce by more than half.

In their lawsuit, the former top officials contend that Mr Musk was frustrated about being forced to complete the purchase and that the billionaire falsely accused them of misconduct to push them out.

By Young Jin Kim & Bart de Gouw

It is widely accepted that cross-border related-party debt can be used by multinational enterprises (MNEs) to shift profits out of a country. In the New Zealand context this led to the introduction of the Restricted Transfer Pricing (RTP) rules and the requirement to disclose inbound cross-border intercompany loans with a value of more than NZD10M to Inland Revenue in the BEPS Disclosure Form (this disclosure requirement has since been amended effective from the 2025 income year with taxpayers just required to hold a copy of the necessary information).

In recent years, the International Revenue Strategy (IRS) team at Inland Revenue has observed considerable behavioural change by foreign-owned MNEs with the introduction of additional equity and/or reducing related-party debt financing. This behavioural change has been attributed to the introduction of the RTP rules and a greater focus on financing by the Inland Revenue (via targeted campaigns, risk reviews and audits).

The past five years has seen a highly volatile interest rate environment, with historic lows in the Official Cash Rate in the 2020 and 2021 years, a rapid increase in 2022 and 2023, and a declining rate since the middle of 2024.  This level of volatility has meant that taxpayers should have been regularly reviewing intercompany financing arrangements to ensure that the behaviour of the parties to the loans, the terms and conditions of loans, and the interest rate have all remained arm’s length.  With the increases in the interest rates applying to the most recently filed 2023 and 2024 tax returns coupled with the Inland Revenue stepping up its audit activity more generally, we are expecting intercompany loans and financing to become a key area of focus for Inland Revenue.  This is starting to come to fruition with the number of risk reviews and audits focusing on intercompany financing increasing.

Risk assessment – Are you a green light or red light?

Now is an opportune time for taxpayers to reflect on their intercompany loans and key risk areas that could be challenged by Inland Revenue. To help with this, we have summarised 9 risk factors when it comes to intercompany loans.

1. The loan is over NZD10m at any time during the income year. RTP rules will apply to the loan and an analysis of the rules will be necessary, which can lead to material denial of interest deductibility as the borrowers’ credit rating may be adjusted and certain loan terms and conditions disregarded.
2. No documented loan terms. Loan agreements are important – this will be the starting point for any Inland Revenue review. In the absence of a valid agreement, Inland Revenue may seek to imply (unfavourable) terms and any pricing analysis conducted to support the interest rate will not have strong basis.
3. Loan agreements that do not clearly state what the arrangement is and what the key purpose of the funds advanced is.
4. The arrangement is non-commercial or contains ‘exotic’ features such as subordination, interest deferral of more than 12 months, or has a term of more than five years. Under the RTP rules, certain exotic terms cannot be priced into the interest rate.
5. Using a fixed interest rate for a revolving credit facility loan (that can be drawn down and repaid by the borrower) or a floating interest rate for a fixed term loan (the reset of an interest rate on a fixed term loan is likely a trigger point requiring a retesting the application of the RTP rules).
6. The loan has been extended, renegotiated, or renewed in the past year. This could make a big difference to the deductible level of interest as the interest rate environments change very quickly and these events also require retesting of the application of the RTP rules.
7. Has the loan been reset at a higher interest rate?  Is this what a third-party borrower would do, i.e. is the behaviour of the parties demonstrably arm’s length?
8. Does the borrower have a high debt percentage?  Greater than 40% is considered high risk for borrowers with a cross border related party borrowing of more than NZD10m.  Similarly, borrowing from related parties in low tax jurisdictions (<15% tax rate) is also a risk factor as set out in the RTP rules.
9. Be mindful of interest gross up clauses – any additional interest paid under a gross-up clause also needs to be arm’s length.

Update to Inland Revenue’s administrative guidance on small value loans

Inland Revenue annually publishes an administrative guidance for small value loans (i.e., for cross-border associated party loans for up to NZD10M principal). This administrative guidance may be applied to cross-border associated party loans.

Inland Revenue has historically provided an interest rate margin (over a relevant base indicator) that it considers to be broadly indicative of an arm’s length rate, in the absence of a readily available market rate for a debt instrument with similar terms and risk characteristics.  The most recent change to the interest margin has also introduced (without explanation or consultation) a change in approach to make the interest rate margin backward looking only and in our view, reduces the practical application of this otherwise widely used administrative guidance.  The current interest rate margin in the guidance is 250 basis points over the relevant base rate and applies for the period 1 July 2024 to 30 June 2025. There is now no equivalent guidance for interest rates for the year to 30 June 2026.  We will continue to provide updates on any developments on the administrative guidance.

Next steps

If any of the above risk factors concern you please contact your usual Deloitte advisor or one of our award winning transfer pricing team to help navigate the issues.