The report contains guidance on how the accurate delineation analysis applies to the capital structure of an MNE within an MNE group.
The OECD on February 11 released a report setting out key transfer pricing guidance pertaining to financial transactions.
In October 2015, as part of the final base erosion and profit shifting (BEPS) package, the OECD published reports on BEPS Action 4 (limiting base erosion involving interest deductions and other financial payments) and BEPS Actions 8-10 (aligning transfer pricing outcomes with value creation). Both reports mandated follow-up work on the transfer pricing aspects of financial transactions.
The report contains guidance on how the accurate delineation analysis applies to the capital structure of an MNE within an MNE group. It outlines the economically relevant characteristics that inform the analysis of the terms and conditions of financial transactions.
The report addresses specific issues related to the pricing of financial transactions (such as treasury functions, intra-group loans, cash pooling, hedging, guarantees, and captive insurance). This analysis elaborates on both the accurate delineation and the pricing of the controlled financial transactions.
Finally, guidance is provided on how to determine a risk-free rate of return and a risk-adjusted rate of return.
Releasing the report, the OECD noted: “This is the first time the OECD Transfer Pricing Guidelines include guidance on the transfer pricing aspects of financial transactions, which will contribute to consistency in the interpretation of the arm’s length principle and help avoid transfer pricing disputes and double taxation.”
The author is Alex Hunter, Editor, TP News. He oversees and updates the publication and also regularly writes news stories about transfer pricing and international tax law. Alex is reachable at editor@transferpricingnews.com
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