TPG2022 Chapter X paragraph 10.56

Category: C. Treasury function, TPG2022 Chapter X: Transfer pricing aspects of financial transactions | Tag: , , , , , , , ,
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In 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. Therefore, in evaluating the pricing of a loan between associated enterprises it is important to consider that the absence of contractual rights over the assets of the borrowing entity does not necessarily reflect the economic reality of the risk inherent in the loan. If the assets of the business are not already pledged as security elsewhere, it will be appropriate to consider under Chapter I analysis whether those assets are available to act as collateral for the otherwise unsecured loan and the consequential impact upon the pricing of the loan.






Related Guidelines

  1. 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...
  2. TPG2022 Chapter X paragraph 10.60Macroeconomic circumstances may lead to changes in the financing costs in the market. In such a context, a transfer pricing analysis with regard to the possibilities of the borrower or the lender to renegotiate the terms of the loan to benefit from better...
  3. TPG2022 Chapter X paragraph 10.98One consideration to be kept in mind with the cost of funds approach is that it should be applied by considering the lender’s cost of funds relative to other lenders operating in the market. The cost of funds can vary between different prospective...
  4. TPG2022 Chapter X paragraph 10.57Credit risk for the lender is the potential that the borrower will fail to meet its payment obligations in accordance with the terms of the loan. In deciding whether a prospective loan is a good commercial opportunity, a lender will also consider the...
  5. 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...
  6. TPG2022 Chapter X paragraph 10.59Borrowers will also consider the potential impact of changes in economic conditions such as interest rates and exchange rates, as well as the risk of not being able to make timely payments of interest and principal on the loan if the borrower’s business...
  7. 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...
  8. 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...
  1. 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...
  2. 2022: ATO Taxpayer Alert on Treaty shopping arrangements to obtain reduced withholding tax rates (TA 2022/2)The ATO is currently reviewing treaty shopping arrangements designed to obtain the benefit of a reduced withholding tax (WHT) rate under a double-tax agreement (DTA) in relation to royalty or dividend payments from Australia. Typically, this benefit is sought via the interposition of one...

Related Case Law

  1. 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...
  2. Sweden vs. Diligentia, June 2010, Regeringsratten case nr 2483-2485-09Diligentia was the parent company of a Group active in real estate. After a take-over of Diligentia by another Group, Skandia Liv, external loans in Diligentia were terminated and replaced with intra-group loans from the new parent company, Skandia Liv. The new loans had an interest rate...
  3. Sweden vs. Nobel Biocare Holding AB, HFD 2016 ref. 45In January 2003, a Swedish company, Nobel Biocare Holding AB, entered into three loan agreements with its Swiss parent company. The loans had 15, 25 and 30 maturity respectively, with terms of amortization and with a variable interest rate corresponding to Stibor plus an interest...
  4. Netherlands vs X B.V., November 2018, Supreme Court, Case No 17/03918Company X B.V. held all the shares in the Irish company A. The Tax Agency in the Netherlands claimed that the Irish company A qualified as a “low-taxed investment participation”. The court agreed, as company A was not subject to a taxation of...