The 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 towards unrelated parties.
TPG2022 Chapter X paragraph 10.61
Category: C. Treasury function, TPG2022 Chapter X: Transfer pricing aspects of financial transactions | Tag: Financial transactions, Insolvency law, Intra-group loan, Lender’s and borrower’s perspectives, Loan, Subordination, Treasury functions
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- 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 10.63Credit ratings can be determined for the overall creditworthiness of an MNE or MNE group4 or for a specific issuance of debt. As detailed in the following paragraphs, determining credit ratings requires consideration of quantitative – e.g. financial information – and qualitative factors...
- TPG2022 Chapter X paragraph 10.101Credit default swaps reflect the credit risk linked to an underlying financial asset. In the absence of information regarding the underlying asset that could be used as a comparable transaction, taxpayers and tax administrations may use the spreads of credit default swaps to...
- 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 10.62The creditworthiness of the borrower is one of the main factors that independent investors take into account in determining an interest rate to charge. Credit ratings can serve as a useful measure of creditworthiness and therefore help to identify potential comparables or to...
- TPG2022 Chapter X paragraph 10.54An 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...
- 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...
- TPG2022 Chapter X paragraph 10.87A guarantee from another party may be used to support the borrower’s credit. A lender placing reliance on a guarantee or guarantees would need to evaluate the guarantor(s) in a similar way to that in which it evaluates the original borrower. For the...
- 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...
- Statement released by New Zealand’s Inland Revenue on determining whether an Arrangement is Tax AvoidanceOn 13 June 2013, a Statement was released by New Zealand’s Inland Revenue Service on the interpretation of Tax Avoidance provisions. This statement outlines the Commissioner’s view of the law on tax avoidance in New Zealand and sets out the approach the Commissioner...
Related Case Law
- 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...
- 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...
- France vs Studialis, October 2020, Administrative Court of Appeal, Case No 18PA01026Between the end of 2008 and the end of 2012 Studialis had issued bonds subscribed by British funds, partners of a Luxembourg company, itself a majority partner of Studialis, carrying an interest rate of 10%. The Tax authorities considered that the interest rate...
- France vs BSA Finances, December 2020, Supreme Administrative Court , Case No 433723In 2009, 2010 and 2011 BSA Finances received a total of five loans granted by the Luxembourg company Nethuns, which belongs to the same group (the “Lactalis group”). Depending on the date on which the loans were granted, they carried interest rates of...