Transfer Pricing Guidance On Financial Transactions

13 February 2020

On 11 February 2020, the OECD released its long-awaited transfer pricing guidance on financial transactions (the “Report”). This guidance, which follows the public discussion draft of July 2018, marks the first time that the OECD’s Transfer Pricing Guidelines (“TP Guidelines”) will include detailed guidance on financial transactions. The Report is expected to contribute to consistency in interpreting the arm’s length principle and avoiding transfer pricing disputes and double taxation issues.

The Report serves as a sequel to the OECD BEPS Action Points 8-10 (Aligning Transfer Pricing Outcomes with Value Creation) and specifically Action Point 4. The latter aims to limit base erosion and profit shifting through the pricing of related party financial transactions, including financial and performance guarantees, derivatives, and captive and other insurance arrangements.

The Report provides new guidance on the following topics:

• Accurate delineation of financial transactions;
• Treasury functions including intra-group loans, cash pools and hedging;
• Financial guarantees;
• Captive insurance; and
• Risk-free and risk-adjusted rates of return.

The Houthoff transfer pricing team highlighted key aspects of the guidance with specific comments in relation to how such guidance could have practical consequences for taxpayers. Read our commentary by clicking the button below.

For more information, please contact the Houthoff Transfer Pricing Team.