No member of the pooling arrangement would expect to participate in the transaction if it made them any worse off than their next best option. The analysis of an MNE’s decision to participate in a cash pool arrangement should be done with reference to its options realistically available, taking into account that an MNE can obtain benefits as a member of the cash pool other than an improved interest rate (see paragraph 10.146) ...

The cash pool member is likely to be participating in providing liquidity as part of a broader group strategy, an arrangement in which the member can have a credit or debit position, which may include among its aims a range of benefits that can only be achieved as part of a collective strategy involving the pool members, done for the benefit of all of the pool participants, and the membership of which is limited to entities within the MNE group. Pool participants deposit cash to the pool (or withdraw cash from the pool), and not to (or from) a particular cash pool member ...

K-Bul is a Bulgarian subsidiary in the K Group. In the years 2007 to 2013 certain financial intra-group contracts were entered (Two financial service contract – concluded on 02.10.2007 and a Loan agreement concluded on 26.01.2010). Following an audit, the market interest rate was determined by the tax authorities on the basis of the Bulgarian National Bank (BNB)’s interest rate statistics published on the Bank’s website, and for the first two contracts a market interest rate of 8.22% was adopted, as reported by the BNB for October 2007 for euro loans to non-financial corporations for a period of one to five years. The loan agreement concluded on 26.01.2010 has a market interest rate of 6,88 %, which corresponds to the BNB interest rate statistics for January 2010 for euro loans to non-financial corporations for a period of up to one year. On that basis the taxable income of K-Bul was restated by amounts representing the difference between the interest charged by the company for the relevant year and the market interest determined in the course of the audit proceedings. K-Bul then filed a complaint with the Administrative Court. The court held that the statistical data of the BNB used in the course of the audit did not constitute a proper method for establishing the market interest on the loans in question. The court held that the interest statistics maintained by the BNB cannot take into account the quantitative and qualitative characteristics of the specific transaction, which is an essential feature of market interest. An appeal was then filed by the tax authorities with the Supreme Administrative Court. Judgement of the Supreme Administrative Court The Supreme Administrative Court set aside the decision of the Administrative Court and remanded the case for a new trial. Excerpts “”In the light of that procedural conduct of the parties, it may be assumed that the court referred to the evidence adduced in the course of the appeal, but, as stated above, that evidence was not discussed. Further, the appellant’s argument in the appeal that the judgment is devoid of reasons as to why the court found it lawful to determine the interest rates under the contracts at issue and why those interest rates should be determined by applying LIBID and EURIBOR, given the undisputed fact that the Bulgarian company carries on its business in Bulgaria, is well founded. The above-mentioned infringements of the rules of reasoning are of a fundamental nature, since they lead to the conclusion that the disputed relations may have developed in a different manner from that accepted by the court. The Court of First Instance should not consider for the first time the evidence admitted in the case and should not establish new facts, since the right of the parties to two-instance proceedings would be infringed. On a retrial, the nature of the contractual relationship between the parties must be determined, taking into account the finding in the course of the audit that the provision of the funds took the form of a deduction of part of the sums owed by customers of the K. group to the Bulgarian company for sales of products made by the latter to them. The rest of the sales amounts were remitted to the LPF and were accounted for as repayment on credit granted, i.e. it has to be considered whether there is a K. Pooling Agreement in this case, taking into account also the manner of accounting of the amounts in question, namely, synthetic accounting of the long-term loans granted in foreign currency in account 226, as well as the description of the activity /page 12 of the evidence book admitted in the course of the proceedings/. If such an arrangement is established, then to the extent that each Participant in the K. Pooling will be able to both provide funds to the Leader and to use the other Participants’ funds through the Leader, any benefits that the individual Participant derives from its presence in this construct should be taken into account in determining whether the prices at which these transactions occur are market-based, and, if necessary, special knowledge should be used to determine the interest that the Participant receives for the funds provided” Click here for English Translation Click here for other translation ...