The application of the cost of funds approach requires consideration of the options realistically available to the borrower. On prevailing facts and circumstances, a borrowing MNE would not enter into a transaction priced under the cost of funds approach if it could obtain the funding under better conditions by entering into an alternative transaction.
TPG2022 Chapter X paragraph 10.99
Category: C. Treasury function, TPG2022 Chapter X: Transfer pricing aspects of financial transactions | Tag: Borrowing costs of lender, Cost of funds approach, Financial transactions, Interest rate, Intra-group loan, Loan, Options realistically available, Treasury functions
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- 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...
- TPG2022 Chapter X paragraph 10.100In some intra-group transactions, the cost of funds approach may be used to price loans where capital is borrowed from an unrelated party which passes from the original borrower through one or more associated intermediary enterprises, as a series of loans, until it...
- 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...
- TPG2022 Chapter X paragraph 10.160Alternatively, Chapter I analysis may indicate that the purported financial guarantee is not providing any benefit to the borrower but merely recognising the benefit that the guaranteed party would have obtained in any case by being part of the MNE group. In such...
- TPG2022 Chapter X paragraph 10.20In an ideal scenario, a comparability analysis would enable the identification of financial transactions between independent parties which match the tested transaction in all respects. With the many variables involved, it is more likely that potential comparables will differ from the tested transaction....
- 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 10.54An 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 10.38In any case, the reliability of results is generally improved to the extent comparable borrowers pursue similar business strategies to the tested borrower involved in an intra-group transaction....
- 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...
- Spain releases report on application of their General Anti-Abuse Rule.The Spanish tax authorities have published a report on the applicability of their domestic General Anti-Abuse Rule (GAAR). In the report, a conduit arrangement aimed at benefiting from an exemption at source on the payment of interest to EU residents is described. ...
Related Case Law
- Norway vs. Exxonmobil Production Norway Inc., January 2018, Lagsmanret no LB-2016-160306An assessment was issued by the Norwegian tax authorities for years 2009 2010 and 2011 concerning the interest on a loan between Exxonmobil Production Norway Inc. (EPNI) as the lender and Exxon Mobile Delaware Holdings Inc. (EMDHI) as the borrower. Both EPNI and...
- Poland vs “Shopping Centre Developer sp.k.”, May 2019, Administrative Court, Case No III SA/Wa 1777/18A Polish company, “Shopping Centre Lender sp.k.”, had been granted three intra group loans in FY 2013 for EUR 2 million, EUR 115 million and EUR 43.5 million. The interest rate on the loans had been set at 9%. The tax authorities found...
- Greece vs “GSS Ltd.”, December 2021, Tax Court, Case No 4450/2021An assessment was issued for FY 2017, whereby additional income tax was imposed on “GSS Ltd” in the amount of 843.344,38 €, plus a fine of 421.672,19 €, i.e. a total amount of 1.265.016,57 €. Various adjustments had been made and among them...
- Poland vs Lender S.A, October 2013, Supreme Administrative Court, Case No II FSK 2297/11 – Wyrok NSAAt issue in this case is the choice of method for determening interest rates on an intra group loan – More precisely whether or not internal comparables existed that were in fact independent. It is also discussed whether a intra group loan is...