Under the mandate of the Report on Actions 8-10 of the BEPS Action Plan (“Aligning Transfer Pricing Outcomes with Value Creation”), Working Party No. 6 (“WP6”) has produced a non-consensus discussion draft on financial transactions.
Comments are due by September 7, 2018. The treasury function, guarantees, intra-group loans, cash pooling transactions and captive insurance are the broad agendas discussed.
The guidance is not intended to prevent countries from implementing approaches to address capital structure and interest deductibility under domestic legislation, nor does it seek to mandate accurate delineation under Chapter I as the only approach for determining whether purported debt should be respected as debt.
As this guidance is critical for establishing if an instrument is true debt, as well as transfer pricing implications for financial relationships, this discussion draft is critical to review and provide relevant comments.
The OECD’s discussion draft is referenced herein for review.
PwC has conducted a survey, as referenced in the attached link, of transfer pricing aspects for financial transactions in over 40 countries in the Americas, Asia Pacific and Europe. The insightful information, current as of 1/1/2013, initially provides a comprehensive overview of intercompany loans, cash pooling and guarantees followed by transfer pricing details for each country.
Each country included in the survey provided responses to the following topics:
- Transfer pricing rules and regulations, domestic / OECD guidelines
- Thin capitalisation
- Intercompany loans (arms-length nature, transfer pricing methodologies, etc.)
- Cash pooling; transfer pricing methodologies
- Intercompany guarantees
- Documentation requirements
- Advance certainty via APA, etc.
Transfer pricing questions and issues re: intercompany loans and various aspects of financial transactions are becoming more common and complex as businesses are continuing global expansion. Accordingly, multinational tax and treasury departments need to be mutually aware of transfer pricing rules for arms-length principles, contemporaneous documentation requirements, and inherent risks / opportunities for intercompany financial transactions.
Evolving rules in this area dictate continual training, awareness and strategizing risks from a global tax and treasury perspective. Transfer pricing training should be provided at regional / global treasury conferences; conversely treasury should ensure tax is aware of new financing tools that arise in different markets to ensure alignment.