In the search for comparability data, a comparable is not necessarily restricted to a stand-alone entity. In examining commercial loans, where the potentially comparable borrower is a member of an MNE group and has borrowed from an independent lender, provided all other economically relevant conditions are sufficiently similar, a loan to a member of a different MNE group or between members of different MNE groups could be a valid comparable.
TPG2022 Chapter X paragraph 10.92
Category: C. Treasury function, TPG2022 Chapter X: Transfer pricing aspects of financial transactions | Tag: Benchmark study, Comparability, Comparable uncontrolled price method (CUP), Financial transactions, Interest rate, Intra-group loan, Loan
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- TPG2022 Chapter X paragraph 10.77In the context of intra-group loans, this incidental benefit that the MNE is assumed to receive solely by virtue of group affiliation, is referred to as implicit support. The effect of potential group support on the credit rating of an entity and any...
- TPG2022 Chapter X paragraph 10.93Arm’s length interest rates can also be based on the return of realistic alternative transactions with comparable economic characteristics. Depending on the facts and circumstances, realistic alternatives to intra-group loans could be, for instance, bond issuances, loans which are uncontrolled transactions, deposits, convertible...
- 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)....
- 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 10.25When, 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 10.56In 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 10.96In considering arm’s length pricing of loans, the issue of fees and charges in relation to the loan may arise. Independent commercial lenders will sometimes charge fees as part of the terms and conditions of the loan, for example arrangement fees or commitment...
- 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...
- 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...
- German royalty barrier to counter IP box-regimesSome countries in Europe offer so-called IP or Patent boxes. To counter such tax practices, effective from 31 December 2017, Germany has introduced a new royalty barrier in ‘Law against Harmful Tax Practices in Connection with the Assignment of Rights. The law limits...
Related Case Law
- 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 Willink SAS, December 2022, Conseil d’Etat, Case No 446669In 2011, Willink SAS issued two intercompany convertible bonds with a maturity of 10 years and an annual interest rate of 8%. The tax authorities found that the 8% interest rate had not been determined in accordance with the arm’s length principle. Willink...
- 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...
- Zambia vs Nestlé Trading Ltd, March 2019, Tax Appeals Tribunal, Case No 2018/TAT/03/DTIn this case Nestlé Zambia had reported continuous losses for more than five years. Following an Transfer Pricing audit covering years 2010 – 2014, the tax administration issued an assessment whereby profits were adjusted to ZMW 56,579,048 resulting in additional taxes of ZMW13,860,103 plus...