An independent lender will carry out a thorough credit assessment of the potential borrower to enable the lender to identify and evaluate the risks involved and to consider methods of monitoring and managing these risks. That credit assessment will include understanding the business itself as well as the purpose of the loan, how it is to be structured and the source of its repayment which may include analysis of the borrower’s cash flow forecasts and the strength of the borrower’s balance sheet.
TPG2022 Chapter X paragraph 10.54
Category: C. Treasury function, TPG2022 Chapter X: Transfer pricing aspects of financial transactions | Tag: Credit assessment, Financial transactions, Intra-group loan, Lender’s and borrower’s perspectives, Loan, Treasury functions
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- TPG2022 Chapter X paragraph 10.25When, under accurate delineation, the lender is not exercising control over the risks associated to an advance of funds, or does not have the financial capacity to assume the risks, such risks should be allocated to the enterprise exercising control and having the...
- TPG2022 Chapter X paragraph 10.58Borrowers seek to optimise their weighted average cost of capital and to have the right funding available to meet both short-term needs and long-term objectives. When considering the options realistically available to it, an independent business seeking funding operating in its own commercial...
- TPG2022 Chapter X paragraph 10.55When an enterprise is making a loan to an associated enterprise, it will not necessarily follow all of the same processes as an independent lender. For example, it may not need to go through the same process of information gathering about the borrower’s...
- TPG2022 Chapter X paragraph 10.61The economic conditions of loans should also be viewed in the context of regulations that may affect the position of the parties. For example, insolvency law in the jurisdiction of the borrower may provide that liabilities towards associated enterprises are subordinated to liabilities...
- TPG2022 Chapter X paragraph 10.56In the case of a loan from the parent entity of an MNE group to a subsidiary, the parent already has control and ownership of the subsidiary, which would make the granting of security less relevant to its risk analysis as a lender....
- 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....
- TPG2022 Chapter X paragraph 10.91The arm’s length interest rate for a tested loan can be benchmarked against publicly available data for other borrowers with the same credit rating for loans with sufficiently similar terms and conditions and other comparability factors. With the extent of competition often present...
- TPG2022 Chapter X paragraph 10.53The lender’s perspective in the decision of whether to make a loan, how much to lend, and on what terms, will involve evaluation of various factors relating to the borrower, wider economic factors affecting both the borrower and the lender, and other options...
- OECD Report, Making Dispute Resolution Mechanisms More Effective, Action 14 – 2015 ReportOECD (2015), Making Dispute Resolution Mechanisms More Effective, Action 14 – 2015 Report, OECD/G20 BEPS Project, After two years of work, the 15 actions have now been completed. All the different outputs, including those delivered in an interim form in 2014, have been...
- Italien Transfer Pricing Guidelines, Ministerial Decree of 14 May 2018, published in the Official Gazette no. 118/2018Italien legislation on transfer pricing is contained in Article 110, paragraph 7 of the Consolidated Income Tax Act, where the first sentence states that “the components of income deriving from transactions with companies not resident in the territory of the State, which directly...
Related Case Law
- Greece vs “SH Loan Ltd”, May 2019, Court, Case No A 1780/2019“SH Loan Ltd” had provided a loan to its shareholder/manager and claimed that it did not expect any profit (interest) from this transaction, since it was not a bank. The tax authorities issued an assessment where additional interest income was added to the...
- Spain vs. PEUGEOT CITROEN AUTOMOVILES, May 2016, Supreme Court, case nr. 58/2015The company had deducted impairment losses recognised on an investment in an Argentinean company (recently acquired from a related entity) arising from the conversion into capital of loans granted to the entity by other group companies, loans which had been acquired by the Spanish taxpayer. The...
- Rio Tinto has agreed to pay AUS$ 1 billion to settle a dispute with Australian Taxation Office over its Singapore Marketing HubOn 20 July 2022 Australian mining group Rio Tinto issued a press release announcing that a A$ 1 billion settlement had been reached with the Australian Taxation Office. “The agreement resolves the disagreement relating to interest on an isolated borrowing used to pay...
- Germany vs “A Investment GmbH”, June 2017, Tax Court , Case no 10 K 771/16A Investment GmbH, acquired all shares of B in May 2012. To finance the acquisition, A Investment GmbH took up a bank loan with a interest rate of 4.78%, a vendor loan with an interest rate of 10% and a shareholder loan with...