Tag: Debt-equity ratio
Relationship of total debt of a company to its ordinary share capital. If a corporate debt is disproportionately high in comparison with its equity, the debt may be recharacterised as equity, resulting in a disallowance of the interest deduction and taxation of the funds as dividends.
Germany – Updated Administrative Principles on Transfer Pricing 2024
12 December 2024, the German Federal Ministry of Finance published updated administrative principles on transfer pricing 2024 (VWG VP 2024). The updates mainly concern the chapter on financial transactions, where paragraphs 3d and 3e have recently been added to the AStG. Paragraph 3d concerns the determination of arm’s length interest rates, group or stand-alone rating and whether capital should be treated as a loan or equity, and paragraph 3e concerns the treatment of financing arrangements, i.e. cash pools, hedging, etc. New guidance is also provided on the application of OECD Pillar 1 – Amount B. Click here for an unofficial English Translation ...
Draft Guidance on recent Updates to German TP provisions on Intra-Group Financing
14 August 2024, the Federal Ministry of Finance sent revised administrative principles for transfer prices 2023 dated 6 June 2023 regarding the topic of intra-group financing, which, among other things, takes into account new paragraphs 3d and 3e in the German TP provisions. An opportunity to comment on the draft will be available until 6 September 2024. Paragraphs 3d and 3e were recently added to the German Foreign Tax Act (AStG). Paragraph 3d concerns the determination of arm’s length interest rates, group or stand-alone rating and whether capital should be treated as a loan or equity and paragraph 3e concerns the treatment of financing arrangements, i.e. cash pools, hedging, etc. Click here for an unofficial English Translation ...
Germany – Update to Transfer Pricing Provisions in the Foreign Tax Act (Außensteuergesetz)
On 27 March 2024, new paragraphs (3d) and (3e) were added to the German Foreign Tax Act (Außensteuergesetz – AStG) regarding intragroup financing. Paragraph (3d) concerns the determination of arm’s length interest rates, group vs. stand-alone rating and whether capital is treated as a loan or equity. Paragraph (3e) concerns the treatment of financing arrangements, i.e. cash pools, hedging, etc ...
TPG2022 Chapter X paragraph 10.66
As a credit rating depends on a combination of quantitative and qualitative factors, there is still likely to be some variance in creditworthiness between borrowers with the same credit rating. In addition, when making comparisons between borrowers using the kind of financial metrics typically seen as important to lenders, such as debt-earnings or debt-equity ratios, it is important to note that the same financial metrics will not necessarily result in the same credit rating if there are other differences between the rated parties. For example, it may require stronger financial metrics to obtain a given rating in some industries than to obtain the same rating for a borrower in other industries. More intrinsically risky industries and those with less stable revenue streams tend to require better financial ratios in order to obtain the same rating ...