In accurately delineating an advance of funds, the following economically relevant characteristics may be useful indicators, depending on the facts and circumstances: the presence or absence of a fixed repayment date; the obligation to pay interest; the right to enforce payment of principal and interest; the status of the funder in comparison to regular corporate creditors; the existence of financial covenants and security; the source of interest payments; the ability of the recipient of the funds to obtain loans from unrelated lending institutions; the extent to which the advance is used to acquire capital assets; and the failure of the purported debtor to repay on the due date or to seek a postponement.
TPG2022 Chapter X paragraph 10.12
Category: B. Interaction with the guidance in Section D.1 of Chapter I, TPG2022 Chapter X: Transfer pricing aspects of financial transactions | Tag: Accurate delineation, Economically relevant characteristics, Equity or Debt/Loan, Financial transactions
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- TPG2022 Chapter X paragraph 10.23In accurately delineating the actual financial transaction, a functional analysis is necessary. This analysis seeks to identify the functions performed, the assets used and the risks assumed by the parties to that controlled transaction....
- TPG2022 Chapter X paragraph 10.22The terms and conditions of a financial transaction between independent enterprises are usually explicitly stated in a written agreement. However, between associated enterprises the contractual arrangements may not always provide information in sufficient detail or may be inconsistent with the actual conduct of...
- TPG2022 Chapter X paragraph 10.17In accordance with the guidance established in Chapter I, the accurate delineation of the actual transaction should begin with a thorough identification of the economically relevant characteristics of the transaction – consisting of the commercial or financial relations between the parties and the...
- TPG2022 Chapter X paragraph 10.11Particular labels or descriptions assigned to financial transactions do not constrain the transfer pricing analysis. Each situation must be examined on its own merits, and subject to the prefatory language in the previous paragraph, accurate delineation of the actual transaction under Chapter I...
- TPG2022 Chapter X paragraph 10.10Although countries may have different views on the application of Article 9 to determine the balance of debt and equity funding of an entity within an MNE group, the purpose of this section is to provide guidance for countries that use the accurate...
- TPG2022 Chapter X paragraph 10.6In the context of the preceding paragraphs, this subsection elaborates on how the concepts of Chapter I, in particular the accurate delineation of the actual transaction under Section D.1, may relate to the balance of debt and equity funding of an entity within...
Related Case Law
- Norway vs Petrolia Noco AS, May 2022, Court of Appeal, Case No LB-2022-18585In 2011, Petrolia SE established a wholly owned subsidiary in Norway – Petrolia Noco AS – to conduct oil exploration activities on the Norwegian shelf. From the outset, Petrolia Noco AS received a loan from the parent company Petrolia SE. The written loan...