The OECD recently published Transfer Pricing Guidance on Financial Transactions, an inclusive framework on BEPS Actions 4, 8-10. This guidance takes into consideration comments received in the July 2018 discussion draft on financial transactions.
The guidance represent an update to the OECD Transfer Pricing Guidelines.
This importance guidance presents guidance for:
Determination if the purported loan should be regarded as a loan
Treasury functions, including cash pooling, intracompany loans and hedging
Risk-free and risk-adjusted rates of return
These principles are significant in scope and consequences that also allow countries to implement approaches in their domestic legislation, so there will be areas of dispute as this new guidance is implemented and interpreted.
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.