The following sections outline the transfer pricing considerations which arise from some relevant treasury activities that are often performed within MNE groups, i.e. the provision of intra-group loans, cash pooling, and hedging activities ...

The activities of the treasury function take into account issues at a group level and follow the vision, strategy and policies set out by MNE group management. Accordingly, the approach of the treasury to risk will depend on the MNE group’s policy where certain objectives may be specified, such as targeted levels of investment return (e.g. the yield must exceed the cost of capital), reduced cash flow volatility, or targeted balance sheet ratios (e.g. assets to liabilities). Therefore, it is important to note that usually the higher strategic decisions will generally be the result of policy set at group level rather than determined by the treasury itself ...

Another key concern regarding treasury activities is the identification and allocation of the economically significant risks in accordance with Chapter I ...

In other situations, the treasury may be found to perform more complex functions and, therefore, it should be compensated accordingly ...

Similarly, the treasury may act as the contact point to centralise the external borrowing of the MNE group. External funds would then be made available within the MNE group through intra-group lending provided by the treasury. On prevailing facts and circumstances, guidance in paragraph 1.188 of Chapter I would apply to these situations and the treasury would be expected to receive an arm’s length fee for its coordination activities ...

Generally, the treasury function is part of the process of making the financing of the commercial business of the MNE group as efficient as possible. As such, the treasury function will usually be a support service to the main value-creating operation as in the case, for example, of the services provided by a cash pool leader (see Section C.2.3). Depending on the facts and circumstances of each case, such activities may be services in which case the pricing guidance on intra-group services at Chapter VII applies ...

When evaluating the transfer pricing issues related to treasury activities, as with any case, it is important to accurately delineate the actual transactions and determine exactly what functions an entity is carrying on rather than to rely to any extent upon a general description such as “treasury activities” ...

Other examples of activities which the treasury may have responsibility for include raising debt (through bond issuances, bank loans or otherwise) and raising equity, and managing the relationship with the MNE group’s external bankers and with independent credit rating agencies ...

Whilst the treasury’s cash and liquidity management function is concerned with day-to-day operations, corporate financial management is concerned with development of strategies and planning for investment decisions in the longer term. Financial risk management requires identification and analysis of, and responses to, the financial risks to which the business is exposed. By identifying and taking action to address financial risk, treasury can help to optimise the cost of capital to the advantage of the users of the MNE group’s treasury services ...

A key function of a corporate treasury may be, for example, to optimise liquidity across the MNE group to ensure that the business has sufficient cash available and that it is in the right place when it is needed and in the right currency. In general, efficient management of MNE group liquidity is driven by considerations above the level of individual entities, and acts to help mitigate risk across a number of entities ...

The organisation of the treasury will depend on the structure of a given MNE group and the complexity of its operations. Different treasury structures involve different degrees of centralisation. In the most decentralised form, each MNE within the MNE group has full autonomy over its financial transactions. Decentralised treasury structures may be present, for instance, in MNE groups with multiple operating divisions that operate in discrete industries or with regional hub structures, or in MNE groups required to comply with specific local regulations. At the opposite end of the scale, a centralised treasury has full control over the financial transactions of the MNE group, with entities within the MNE group responsible for operational but not financial matters ...

For MNE groups, the management of group finances is an important and potentially complex activity where the approach adopted by individual businesses will depend on the structure of the business itself, its business strategy, place in the business cycle, industry sector, currencies of operation, etc ...

The following sections outline the transfer pricing considerations which arise from some relevant treasury activities that are often performed within MNE groups, i.e. the provision of intra-group loans, cash pooling, and hedging activities ...

The activities of the treasury function take into account issues at a group level and follow the vision, strategy and policies set out by MNE group management. Accordingly, the approach of the treasury to risk will depend on the MNE group’s policy where certain objectives may be specified, such as targeted levels of investment return (e.g. the yield must exceed the cost of capital), reduced cash flow volatility, or targeted balance sheet ratios (e.g. assets to liabilities). Therefore, it is important to note that usually the higher strategic decisions will generally be the result of policy set at group level rather than determined by the treasury itself ...

Another key concern regarding treasury activities is the identification and allocation of the economically significant risks in accordance with Chapter I ...

In other situations, the treasury may be found to perform more complex functions and, therefore, it should be compensated accordingly ...

Similarly, the treasury may act as the contact point to centralise the external borrowing of the MNE group. External funds would then be made available within the MNE group through intra-group lending provided by the treasury. On prevailing facts and circumstances, guidance in paragraph 1.168 of Chapter I would apply to these situations and the treasury would be expected to receive an arm’s length fee for its coordination activities ...

Generally, the treasury function is part of the process of making the financing of the commercial business of the MNE group as efficient as possible. As such, the treasury function will usually be a support service to the main value-creating operation as in the case, for example, of the services provided by a cash pool leader (see Section C.2.3). Depending on the facts and circumstances of each case, such activities may be services in which case the pricing guidance on intra-group services at Chapter VII applies ...

When evaluating the transfer pricing issues related to treasury activities, as with any case, it is important to accurately delineate the actual transactions and determine exactly what functions an entity is carrying on rather than to rely to any extent upon a general description such as “treasury activities” ...

Other examples of activities which the treasury may have responsibility for include raising debt (through bond issuances, bank loans or otherwise) and raising equity, and managing the relationship with the MNE group’s external bankers and with independent credit rating agencies ...

Whilst the treasury’s cash and liquidity management function is concerned with day-to-day operations, corporate financial management is concerned with development of strategies and planning for investment decisions in the longer term. Financial risk management requires identification and analysis of, and responses to, the financial risks to which the business is exposed. By identifying and taking action to address financial risk, treasury can help to optimise the cost of capital to the advantage of the users of the MNE group’s treasury services ...

A key function of a corporate treasury may be, for example, to optimise liquidity across the MNE group to ensure that the business has sufficient cash available and that it is in the right place when it is needed and in the right currency. In general, efficient management of MNE group liquidity is driven by considerations above the level of individual entities, and acts to help mitigate risk across a number of entities ...

The organisation of the treasury will depend on the structure of a given MNE group and the complexity of its operations. Different treasury structures involve different degrees of centralisation. In the most decentralised form, each MNE within the MNE group has full autonomy over its financial transactions. Decentralised treasury structures may be present, for instance, in MNE groups with multiple operating divisions that operate in discrete industries or with regional hub structures, or in MNE groups required to comply with specific local regulations. At the opposite end of the scale, a centralised treasury has full control over the financial transactions of the MNE group, with entities within the MNE group responsible for operational but not financial matters ...

For MNE groups, the management of group finances is an important and potentially complex activity where the approach adopted by individual businesses will depend on the structure of the business itself, its business strategy, place in the business cycle, industry sector, currencies of operation, etc ...