TPG2020 Chapter X paragraph 10.159

Category: D. Financial guarantees, D.1. Accurate delineation of financial guarantees, OECD Transfer Pricing Guidelines (2017), TPG2020 Chapter X: Financial Transactions | Tag: , , , ,
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Where the effect of an intra-group guarantee as accurately delineated is to reduce the cost of debt-funding for the borrower, it might be prepared to pay for that guarantee, provided it was in no worse a position overall. In considering the borrower’s overall financial position as a result of the guarantee, its cost of borrowing with the guarantee (including the cost of the guarantee and any associated costs of arranging the guarantee) would be measured against its non-guaranteed cost of borrowing, taking into account any implicit support. Borrowing with a guarantee might also affect terms and conditions of the loan other than price; each case will depend on its own facts and circumstances.






Related Guidelines

  1. TPG2022 Chapter X paragraph 10.160Alternatively, Chapter I analysis may indicate that the purported financial guarantee is not providing any benefit to the borrower but merely recognising the benefit that the guaranteed party would have obtained in any case by being part of the MNE group. In such...
  2. TPG2022 Chapter X paragraph 10.176The benefit of implicit support will be the difference between the borrowing terms attainable by the borrowing entity based on its credit rating as a member of the MNE group and those attainable on the basis of the stand-alone credit rating it would...
  3. TPG2022 Chapter X paragraph 10.175The next step would be to determine, by a similar process (unless directly observable in the case of a loan from a third party), the interest rate payable with the benefit of the explicit guarantee. The interest spread can be used in quantifying...
  4. TPG2022 Chapter X paragraph 10.158From the perspective of a lender, the consequence of one or more explicit guarantees is that the guarantor(s) are legally committed; the lender’s risk would be expected to be reduced by having access to the assets of the guarantor(s) in the event of...
  5. TPG2022 Chapter X paragraph 10.172The difficulty with using the CUP method is that publicly available information about a sufficiently similar credit enhancing guarantee is unlikely to be found between unrelated parties given that unrelated party guarantees of bank loans are uncommon....
  6. TPG2022 Chapter X paragraph 10.156The accurate delineation of financial guarantees requires initial consideration of the economic benefit arising to the borrower beyond the one that derives from passive association, as explained in the Section C.1.1.3....
  7. TPG2022 Chapter X paragraph 10.162This section elaborates on the effect of group membership on determining the arm’s length price of financial guarantees, building upon the principles laid out in Section C.1.1....
  8. TPG2022 Chapter X paragraph 10.159Where the effect of an intra-group guarantee as accurately delineated is to reduce the cost of debt-funding for the borrower, it might be prepared to pay for that guarantee, provided it was in no worse a position overall. In considering the borrower’s overall...
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Related Case Law

  1. Sweden vs. Diligentia, June 2010, Regeringsratten case nr 2483-2485-09Diligentia was the parent company of a Group active in real estate. After a take-over of Diligentia by another Group, Skandia Liv, external loans in Diligentia were terminated and replaced with intra-group loans from the new parent company, Skandia Liv. The new loans had an interest rate...
  2. Germany vs “C A GmbH”, February 2019, Bundesfinanzhof, Case No I R 73/16C A GmbH managed an unsecured clearing account for a Belgian subsidiary. After financial difficulties in the Belgian subsidiary, C A GmbH waived their claim from the clearing account and booked this in their balance sheet as a loss. However, the tax office disallowed the...
  3. Poland vs L S.A, June 2019, Supreme Administrative Court, Case No. II FSK 1808/17 – Wyrok NSAA Polish subsidiary in a German Group had taken out a significant inter-company loan resulting in a significantly reduced income due to interest deductions. At issue was application of the Polish arm’s length provisions and the arm’s length nature of the interest rate...
  4. Germany vs “X Sub GmbH”, December 2016, Münster Fiscal Court, Case No 13 K 4037/13 K,FX Sub GmbH is a German subsidiary of a multinational group. The parent company Y Par B.V. and the financial hub of the group Z Fin B.V. – a sister company to the German subsidiary – are both located in the Netherlands. In...