On 11 February 2020 The OECD has published a long-awaited report containing transfer pricing guidelines for financial transactions. The report is fully devoted to the transfer pricing aspects of financial transactions. His publication was preceded by a long public discussion.
To a large extent, the report provides guidance on detailing the principles of Section D.1 Chapter I of the OECD Transfer pricing Guidelines (July edition 2017), which is devoted to transfer pricing issues in the context of financial transactions.
The content of the report in Section B indicates how an accurate descriptive analysis based on Chapter I applies to the capital structure of international companies in the group.
It also explains that the guidelines in this section do not prevent countries from implementing approaches to capital structure and interest deduction rules in accordance with their national rules.
The report also presents economically relevant characteristics that should form the basis for analysing the terms of financial transactions.
Sections C, D and E address specific issues related to the valuation of financial transactions (e.g. fiscal functions, intragroup loans, cash-pooling, collateral, guarantees and internal insurance). The comments made concern both the detailed description of the transactions identified and the valuation of financial transactions. The last part of the new report contains guidance on how to set the risk-free rate of return and risk-adjusted rate of return in the variant.
According to the assumptions of the authors of the report, the entire content of the report will be included in the core OECD Transfer Pricing Guidelines – in a large majority as a new Chapter X.
The purpose of drawing up detailed guidelines for financial transactions in the context of transfer pricing is to achieve consistent rules for the use of transfer prices in the context of such transactions, to avoid disputes between taxpayers and tax administrations effectively and to avoid double taxation.
The full text of the report can be found at:
http://www.oecd.org/tax/beps/transfer-pricing-guidance-on-financial-transactions-inclusive-framework-on-beps-actions-4-8-10.pdf
Source:
OECD (2020), Transfer Price Guidance on Financial Transactions: Inclusive Framework on BEPS Actions 4, 8-10, OECD,
Paris, www.oecd.org/tax/beps/transfer-price-guidance-on-financial-transactions-inclusive-framework-on-beps-actions-4-8-10.htm.