TPG2022 Chapter X paragraph 10.158

Category: D. Financial guarantees, TPG2022 Chapter X: Transfer pricing aspects of financial transactions | Tag: , , , ,
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From the perspective of a lender, the consequence of one or more explicit guarantees is that the guarantor(s) are legally committed; the lender’s risk would be expected to be reduced by having access to the assets of the guarantor(s) in the event of the borrower’s default. Effectively, this may mean that the guarantee allows the borrower to borrow on the terms that would be applicable if it had the credit rating of the guarantor rather than the terms it could obtain based on its own, non-guaranteed, rating. The principles and methodologies of pricing a guarantee in these circumstances are similar to those explained for loan pricing in Section C.1.2.






Related Guidelines

  1. 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...
  2. TPG2022 Chapter X paragraph 10.162This section elaborates on the effect of group membership on determining the arm’s length price of financial guarantees, building upon the principles laid out in Section C.1.1....
  3. 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,...
  4. TPG2022 Chapter X paragraph 10.156The accurate delineation of financial guarantees requires initial consideration of the economic benefit arising to the borrower beyond the one that derives from passive association, as explained in the Section C.1.1.3....
  5. TPG2022 Chapter X paragraph 10.159Where the effect of an intra-group guarantee as accurately delineated is to reduce the cost of debt-funding for the borrower, it might be prepared to pay for that guarantee, provided it was in no worse a position overall. In considering the borrower’s overall...
  6. TPG2022 Chapter X paragraph 10.88The following paragraphs present different approaches to pricing intra-group loans. As in any other transfer pricing situation, the selection of the most appropriate method should be consistent with the actual transaction as accurately delineated, in particular, through a functional analysis (see Chapter II)....
  7. TPG2022 Chapter X paragraph 10.183The following examples build on the principles discussed in Section D.8 of Chapter I, in particular in paragraph 1.187....
  8. TPG2022 Chapter X paragraph 10.165A similar issue arises in respect of cross-guarantees, where two or more entities in an MNE group guarantee each other’s obligations. From the lender’s perspective, it has access to the assets of every cross-guaranteeing entity in the event of a default by a...
  1. United Arab Emirates issues comprehensive Transfer Pricing Guide23 October 2023, the United Arab Emirates issued a comprehensive practical Transfer Pricing Guide. The guide is designed to provide general guidance on the Transfer Pricing regime in the UAE with a view to making the provisions of the Transfer Pricing regulations as...
  2. July 2017: ATO guidance on related party financing arrangementsThe Practical Compliance Guideline (Guideline) from the ATO outlines the compliance approach to the taxation outcomes associated with a ‘financing arrangement’, as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997), or a related transaction or contract, entered into...

Related Case Law

  1. Germany vs “C A GmbH”, February 2019, Bundesfinanzhof, Case No I R 73/16C A GmbH managed an unsecured clearing account for a Belgian subsidiary. After financial difficulties in the Belgian subsidiary, C A GmbH waived their claim from the clearing account and booked this in their balance sheet as a loss. However, the tax office disallowed the...
  2. Diageo – British multinational beverage and alcohol group – is facing various tax challengesDiageo (British multinational beverage and alcohol group – owner of numerus brands including Jonny Walker, Captain Morgan, Gordons Gin, Smirnoff and Guinness) is facing difficult tax challenges according to the group’s August 2020 SEC-filings During 2017 Diageo was in discussions with UK tax...
  3. Poland vs A. Sp. z o. o., February 2022, Supreme Administrative Court, Case No II FSK 1475/19A. Sp. z o.o. was established to carry out an investment project consisting in construction of a shopping center. In order to raise funds, the company concluded a loan agreement. The loan agreement was guaranteed by shareholders and other related parties. By virtue...
  4. France vs Carrefour, February 1992, Supreme Administrative Court no 81690/82782In the French Carrefour case, the French Supreme Administrative Court considered a rate of 0.25% for a loan guarantee to be at arm’s length. According to the Court, the remuneration should be commensurate with the risk incurred as well as with the market...