Commentary to Article 9 of the OECD Model Tax Convention notes at paragraph 3(b) that Article 9 is relevant “not only in determining whether the rate of interest provided for in a loan contract is an arm’s length rate, but also whether a prima facie loan can be regarded as a loan or should be regarded as some other kind of payment, in particular a contribution to equity capital.”
TPG2022 Chapter X paragraph 10.5
Category: B. Interaction with the guidance in Section D.1 of Chapter I, TPG2022 Chapter X: Transfer pricing aspects of financial transactions | Tag: Article 9, Equity or Debt/Loan, Financial transactions, Non-recognition and re-characterisation, Prima facie loan
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- 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 10.7Where it is considered that the arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner in comparable circumstances, the guidance at Section D.2 of...
- TPG2022 Chapter X paragraph 10.13For example, consider a situation in which Company B, a member of an MNE group, needs additional funding for its business activities. In this scenario, Company B receives an advance of funds from related Company C, which is denominated as a loan with...
- TPG2022 Chapter X paragraph 10.12In 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...
- 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 10.8Although this guidance reflects an approach of accurate delineation of the actual transaction in accordance with Chapter I to determine the amount of debt to be priced, it is acknowledged that other approaches may be taken to address the issue of the balance...
Related Case Law
- 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...
- India vs Aegis Ltd, January 2018, High Court of Bombay, Case No 1248 of 2016In this case Aegis Ltd had advanced money to an assosiated enterprice (AE) and recived preference shares carrying no dividend in return. The Indian Transfer Pricing Officer (TPO) held that the “acqusition of preference shares” were in fact equivalent to an interest free...
- Poland vs A S.A., June 2021, Provincial Administrative Court, Case No I SA/Gl 1649/20The business activity of A S.A. was wholesale of pharmaceutical products to external pharmacies, hospitals, wholesalers (including: to affiliated wholesalers). The tax authority had noted that the company’s name had been changed in FY 2013, and a loss in the amount of PLN...
- India vs Gulbrandsen Chemicals Ltd., February 2020, High Court, Case No 751 of 2019Gulbrandsen Chemicals manufactures chemicals for industrial customers in the petrochemical and pharmaceutical industry. The Indian Subsidiary, Gulbrandsen India also sold these products to its affiliated enterprises, namely Gulbrandsen Chemicals Inc, USA, and Gulbrandsen EU Limited. In regards of the controlled transactions, the tax...
- Portugal vs “B Lender S.A”, January 2021, Supremo Tribunal Administrativo, Case No JSTA000P26984In 2005 “B Lender S.A” transferred a supplementary capital contributions to company C. The capital was to be paid back in 31 October 2009 and was provided interest-free. Tax Authorities adjusted the taxable income of “B Lender S.A” with an amount of EUR...