A lender would benefit from the stronger credit rating of the guarantor (compared to the borrower’s credit rating) and/or the guarantor’s asset pool (in addition to the borrower’s asset pool), and the borrower accordingly may expect a benefit in the form of a lower interest rate. Thus, based on facts and circumstances, a guarantee may provide a benefit to the borrower that has the same or higher credit rating as the guarantor, if the guarantee effectively allows the lender to access wider recourse and, therefore, reduces the interest rate despite the guarantor not having a higher credit rating. In determining the credit rating of the guarantor and the borrower, the effect of implicit support must be considered as explained in Section C.1.1.
TPG2020 Chapter X paragraph 10.167
Category: D. Financial guarantees, D.1. Accurate delineation of financial guarantees, OECD Transfer Pricing Guidelines (2017), TPG2020 Chapter X: Financial Transactions | Tag: Financial capacity of the guarantor, Financial guarantee, Financial transactions, Treasury functions
« Prev |
Next » Related Guidelines
- TPG2022 Chapter X paragraph 10.168Likewise, the financial capacity of the guarantor to meet its obligations requires an analysis of the correlation between the guarantor’s and borrower’s businesses. In situations where the guarantor and the borrower operate under similar market conditions, an adverse market event that affects the...
- TPG2022 Chapter X paragraph 10.167A lender would benefit from the stronger credit rating of the guarantor (compared to the borrower’s credit rating) and/or the guarantor’s asset pool (in addition to the borrower’s asset pool), and the borrower accordingly may expect a benefit in the form of a...
- TPG2022 Chapter X paragraph 10.166The examination of financial guarantees under accurate delineation needs also to consider the financial capacity of the guarantor to fulfill its obligations in case of default of the borrower. This requires an evaluation of the credit rating of the guarantor and the borrower,...
- TPG2022 Chapter X paragraph 10.188The accurate delineation of the actual transaction indicates that the enhancement of Company D’s credit standing from A to AAA is attributable to a deliberate concerted group action, i.e. the guarantee provided by Company M. Company D would be expected to be willing...
- TPG2022 Chapter X paragraph 10.187Consider the same fact pattern as described in Example 1, but in this case assume that under the guidance in Section D.2, comparable uncontrolled transactions can be identified showing that the arm’s length price of a comparable guarantee would be in the range...
- TPG2022 Chapter X paragraph 10.186In that situation, the analysis under Chapter I may indicate that an independent enterprise borrowing under the same conditions as Company D would not be expected to pay a guarantee fee of 3% to Company M for the provision of the explicit guarantee...