Transfer Pricing and Intra-Group FinancingTransfer Pricing and Intra-Group Financing The entangled...

Transfer Pricing and Intra-GroupFinancing

The entangled worlds of financial marketsand transfer pricing

Edited byAnuschka Bakker

andMarc M. Levey

Table of Contents

Foreword v

Acknowledgements ix

Chapter 1: Introduction 1

1.1. General considerations: The change in (market)circumstances 1

1.2. The OECD framework and selected internationaldevelopments 4

1.3. Typical types of intercompany financial transactions 71.4. The treasury functions: Typical characterization of

the treasury department 81.5. Intercompany loans, the issue of hidden capitalization

and the arm's length principle: Theory and practice 101.5.1. Hybrid financing 301.6. Financial guarantees and performance guarantees 321.7. Cash management and optimization 391.8. Factoring 451.9. Foreign exchange and commodity risk management 491.10. Captive insurance 511.11. Establishing an intra-group policy 53

Chapter 2: Australia 57

2.1.2.1.1.2.1.2.2.1.3.2.1.4.2.1.5.2.1.6.

2.2.2.2.1.2.2.2.2.2.3.2.3.2.3.1.

Corporate income tax frameworkCorporate income tax systemTaxable entitiesTaxable incomeTax lossesTax ratesInteraction of thin capitalisation and transfer pricinglegislationOverview of intra-group financing in AustraliaHistorical contextRecent developmentsProposed legislation rewriteIntercompany loansLoan or equity

575757585858

59595960636465

Table of Contents

2.3.1.1. Transfer pricing considerations in relation to debtand equity 66

2.3.2. Profit participating loans (PPLs) and hybrid debtinstruments 68

2.3.3. Interest charged 692.3.3.1. Arm's length pricing considerations arising from

TR 92/11 692.3.3.2. Considerations arising from TR 2010/7 702.3.4. Transfer pricing approach 722.3.4.1. Steps in the application of the above approach 722.3.4.2. Impact of ordering of the above steps 752.3.4.3. Potential adjustments when the financing

transactions produce non-commercial outcomes 752.3.5. Example 762.4. Guarantee fees 772.4.1. A parent company funding a subsidiary unable to

borrow the funds it needs on a stand-alone basis 782.4.1.1. Example 782.4.2. A parent or offshore associate provides debt funding

to a group company that has the financial strength tobe able to borrow the debt funding it needs withoutsupport from its parent company 79

2.4.2.1. Example 792.4.3. A parent guaranteeing the debt of a wholly owned

group company that is unable on a stand-alone basisto borrow the debt funding it needs 80

2.4.3.1. Example 812.4.4. A parent company provides a guarantee to a

subsidiary that is able to borrow the funds it needson a stand-alone basis, to allow the subsidiary toaccess funding at the lower cost available to theparent 83

2.4.4.1. Example 832.4.5. Transfer pricing methods 842.4.6. Use of a range of results 852.5. Cash pooling 862.5.1. Interest 862.5.1.1. Cash pooling for administrative convenience 862.5.1.2. Operation of an in-house "bank" 872.5.2. Remuneration CPL 882.5.2.1. Cash pooling for administrative convenience 882.5.2.2. Operation of an in-house "bank" 89

2.5.3.2.5.4.2.5.5.2.6.2.7.2.8.2.9.2.10.2.10.1.2.10.1.1.

2.10.2.2.10.3.2.10.4.2.10.5.2.10.6.2.11.

Table of Contents

Allocation of cash pool benefitDocumentationAdvance pricing arrangements (APAs)FactoringLeasingOther forms of financing and credit risk arrangementsBranchesDocumentationOverview of documentation requirementsApplication of the four-step process for financingtransactionsContemporaneous documentationTiming aspectsPenalty aspectsBurden of proofFurther exceptionsRecommendations

898989909091919192

93949494959596

Chapter 3: Brazil 97

3.1.3.1.1.3.1.2.3.1.3.3.1.4.3.1.5.3.1.6.

3.2.3.2.1.3.2.2.3.2.3.3.2.3.1.3.2.3.2.3.2.3.3.3.2.4.3.2.5.3.2.6.3.2.7.3.2.8.3.2.9.3.2.10.

Corporate income tax frameworkCorporate income tax systemTaxable entitiesTaxable incomeTax lossesTax ratesInteraction of thin capitalization and transfer pricinglegislationIntercompany loansLoan or equityProfit participation loans (PPLs)Interest chargedHistorical backgroundIndexes, concepts and acronymsInterest range scenariosTransfer pricing (TP) methodsThin cap rulesExchange controls and Central Bank registrationIOF taxDisguised distributions of profitsIntercompany back-to-back loansInterest on net equity

97979899

100100

101102102103104104105112115120122125126128129

Table of Contents

3.2.11. Subordinated loans 1303.2.12. Hedging 1303.2.13. Withholding income tax 1313.3. Guarantee fees 1313.3.1. A parent guaranteeing the debt of a wholly owned


3.3.2. A parent or offshore associate provides debt fundingto a group company that has the financial strength tobe able to borrow the debt funding it needs withoutsupport from its parent company 132

3.3.3. A parent company funding a subsidiary unable toborrow the funds it needs on a stand-alone basis 132

3.3.4. A parent company provides a guarantee to asubsidiary that is able to borrow the funds it needson a stand-alone basis, to allow the subsidiary toaccess funding at the lower cost available to theparent 132

3.3.5. Transfer pricing methods 1333.3.6. Use of range of results 1333.3.7. Requirement for outcomes to make commercial

sense 1333.4. Cash pooling 1343.4.1. Interest 1353.4.2. Allocation of cash pool benefit 1353.4.3. Documentation 1353.4.4. APA 1353.5. Factoring 1353.6. Leasing • 1363.7. Other forms of financing and credit risk arrangements 1383.8. Sectors 1383.9. Documentation 1383.10. Recommendations 139

Chapter 4: Canada 141

4.1. Corporate income tax framework 1414.1.1. Corporate income tax system 1414.1.2. Transfer pricing - 1424.1.2.1. Relevant legislation 1424.1.2.2. Applicable jurisprudence 1444.1.2.3. Transfer pricing methods (TPM) 145

XIV

Table of Contents

4.1.2.4. Documentation requirements 1484.1.2.5. Advance pricing arrangements .1494.1.3. Taxable entities 1504.1.4. Taxable income 1514.1.5. Ordinary tax losses 1524.1.6. Tax rates 1534.1.7. Interaction between thin capitalization and transfer

pricing 1544.2. Intercompany loans 1564.2.1. Loan or equity 1564.2.2. Profit participating loans 1574.2.3. Interest charged 1574.2.4. Transfer pricing methods 1584.3. Guarantee fees 1584.3.1. A parent guaranteeing the debt of a wholly owned





4.3.5. Transfer pricing methods 1624.3.6. Use of a range of results 1624.3.7. Requirement for outcomes to make commercial sense 1634.4. Cash pooling 1634.4.1. Interest 1644.4.2. Remuneration - Cash pool leader 1644.4.3. Allocation of cash pool benefit 1644.4.4. APA ' 1654.5. Factoring 1654.6. Leasing 1664.7. Other forms of financing and credit risk arrangements 1674.7.1. Derivatives 1674.7.2. Foreign exchange 1684.7.3. Hybrid financial instruments 168

Table of Contents

4.84.84.84.84.9

.1.

.2.

.3.

SectorsNatural resource industryFinancing start-upsAutomotiveRecommendations

169169170170172

Chapter 5: China 173

5.1. Corporate income tax framework 1735.1.1. Corporate income tax system 1735.1.2. Taxable entities 1765.1.3. Taxable income 1765.1.4. Tax losses 1775.1.5. Tax rates 1775.1.6. Transfer pricing and thin capitalization legislation 1775.2. Intercompany loans 1805.2.1. Loan or equity 1815.2.2. Profit participating loans (PPLs) 1815.2.3. Interest charged 1825.2.4. Transfer pricing methodologies 1835.2.4.1. Acceptable transfer pricing methods 1835.3. Guarantee fees 1855.3.1. A parent company that guarantees the debt of a fully

owned company that is unable to obtain the financeitself that it needs 186

5.3.2. A parent or offshore associate provides funding to agroup company even though it is capable and has thefinancial strength to borrow the funding it needs 186

5.3.3. Parent company provides funding to a subsidiarythat is unable to borrow the funds it needs 186

5.3.4. A parent company becomes a guarantor for asubsidiary that is able to borrow the funds it needson a standalone basis, but does so in order for thesubsidiary to gain funding at the lower cost availableonly to the parent 186

5.3.5. Transfer pricing methods 1875.3.6. Use of range of results 1885.3.7. Requirement for outcomes to make commercial sense 1885.4. Cash pooling - 1895.4.1. Interest 1905.4.2. Remuneration of CPL 1915.4.3. Transfer pricing treatment on cash pooling 191

xvi

5.5.5.6.5.7.

5.7.1.5.7.2.5.7.3.5.7.4.

5.8.5.8.1.5.8.2.5.8.3.5.8.4.5.9.5.10.

FactoringLeasingOther forms of financing and credit riskarrangementsDerivativesHybrid financial instrumentsForeign exchangeTransfer pricing for other financing andarrangementsSectorsFinancial services industryOil and gas industryFinancing start-upsFinancing and leasing in the automotiveTransfer pricing documentationRecommendation

Table of Contents

credit risk

industry

194195

197197198198

199202202204205206207208

Chapter 6: France 209

6.1.6.1.1.6.1.2.6.1.3.6.1.4.6.1.5.6.1.5.1.6.1.5.2.6.1.6.

6.1.6.1.6.1.6.1.1.6.1.6.1.2.6.1.6.1.3.6.1.6.1.4.

6.1.6.2.6.1.6.3.6.1.6.4.

6.1.6.4.1.6.1.6.4.2.6.2.

Corporate income tax frameworkCorporate income tax systemTaxable entitiesTaxable incomeTax lossesTax ratesIncomeCapital gainsInteraction between thin capitalization and transferpricing legislationMaximum interest rate and thin capitalization rulesShareholder loans and current accountsInterest served to related partiesThin capitalization rulesLimitation of interest expenses deduction linked tothe acquisition of participation sharesTransfer pricing rulesAnti-abuse provisionsInteraction between thin capitalization rules andtransfer pricing rulesInterest rateDebt-to-equity ratioIntercompany loans

209209209210210211211212

212212213213214

215216217

219219219220

XVll

Table of Contents

6.2.1. Loan or equity 2206.2.2. Profit participating loans (PPLs) and hybrid

instruments 2216.2.3. Illustration of relevant case law on characterization

of debt or equity 2236.2.3.1. Foreign legal characterization 2236.2.3.2. Substance requirements 2246.2.4. Interest charged 2256.2.4.1. Perspective of a French borrower 2256.2.4.2. Perspective of a French lender 2266.2.5. Debt waivers by a parent company to its subsidiary 2276.3. Guarantee fees 2286.3.1. Should the guarantee be remunerated? 2286.3.2. Determination of an arm's length remuneration for

the guarantees 2296.3.3. Withholding tax issues 2296.4. Cash pooling 2296.4.1. Interest paid under cash-pooling arrangements 2296.4.1.1. Deductibility of interest payments 2296.4.1.2. Withholding tax on interest payments 2306.4.2. Interest received under cash pooling 2316.4.3. Remuneration of the cash-pooling entity 2316.4.4. Allocation of cash-pool benefit 2316.4.5. Transfer of the cash-pooling activity 2326.5. Factoring 2336.6. Leasing 2356.7. Other forms of financing and credit risk

arrangements , 2366.8. Sectors ' 2366.8.1. Oil and gas industry 2366.8.2. Financing start-ups 2376.8.3. Automotive 2376.9. Documentation 2376.10. Recommendations 238

Chapter 7: Germany

7.1. Corporate income tax framework7.1.1. Corporate income tax system7.1.2. Taxable entities7.1.3. Taxable income7.1.4. Tax losses

241

241241242242242

Table of Contents

7.1.5.7.1.6.

7.2.7.2.1.7.2.2.7.2.3.7.2.4.7.2.5.7.3.7.3.1.

7.3.2.

7.3.3.

7.3.4.

7.3.5.7.3.6.7.4.7.4.1.7.4.2.7.4.3.7.4.4.7.4.5.7.5.7.6.7.7.

7.8.7.8.1.7.8.2.7.8.3.7.9.7.10.

Tax ratesInteraction of thin capitalization and transfer pricinglegislationIntercompany loansLoan or equityProfit participating loans (PPLs)Interest chargedTransfer pricing methodsCase studyGuarantee feesA parent guaranteeing the debt of a wholly ownedgroup company that is unable on a stand-alone basisto borrow the debt funding it needsA parent or offshore associate provides debt fundingto a group company that has the financial strength tobe able to borrow the debt funding it needs withoutsupport from its parent companyA parent company funding a subsidiary unable toborrow the funds it needs on a stand-alone basisA parent company provides a guarantee to asubsidiary that is able to borrow the funds it needson a stand-alone basis, to allow the subsidiary toaccess funding at the lower cost available to theparentTransfer pricing methodsUse of range of resultsCash poolingInterestRemuneration CPLAllocation of cash pool benefitDocumentationAdvance pricing agreements (APA)FactoringLeasingOther forms of financing and credit riskarrangementsSpecific industriesOil and gas industryFinancing start-upsAutomotiveDocumentationRecommendations

242

243243243244245247250252

253

253

254

254255256258258259259260261262266

266267267267268268268

XIX

Table of Contents

Chapter 8: India 271

8.1. Introduction 2718.2. Corporate income tax framework 2728.2.1. Corporate income tax system 2728.2.1.1. Introduction 2728.2.1.2. Transfer pricing framework 2728.2.1.3. Transfer pricing methodology 2738.2.1.4. Applicability of transfer pricing provisions to

specified domestic transactions 2738.2.1.5. Transfer pricing documentation requirements 2748.2.2. Taxable entities 2758.2.3. Taxable income 2758.2.4. Tax losses 2758.2.5. Tax rates 2768.2.6. Withholding tax on interest payments to

non-residents 2768.2.7. Thin capitalization 2778.2.8. General anti-avoidance rules 2778.2.9. Advance pricing agreement 2778.3. Intercompany loans 2788.3.1. Loan or equity 2798.3.2. Interest charged 2798.3.3. TP methods 2818.3.4. Interest-free loans 2818.3.4.1. Attribution interest income on a notional basis when

there is no real income 2828.3.4.2. Rulings on benchmarking of interest-free loans 2838.3.4.3. Rulings on attribution of interest income on

long-outstanding trade receivables 2858.3.5. Relevance of exchange control caps in the context of

transfer pricing benchmarking 2888.4. Guarantee fees 2908.4.1. A parent guaranteeing the debt of a wholly owned




xx

Table of Contents

8.4.4.

8.5.8.6.8.7.8.8.

8.9.8.10.

A parent company provides a guarantee to asubsidiary that is able to borrow the funds it needson a stand-alone basis, to allow the subsidiary toaccess funding at the lower cost available to theparent.Cash poolingFactoringLeasingOther forms of financing and credit riskarrangementsSectorsConclusion

292294295296

297297298

Chapter 9: Ireland 299

9.1. Corporate income tax framework 2999.1.1. Corporate income tax system 2999.1.2. Taxable entities 3019.1.3. Taxable income 3019.1.4. Tax losses 3029.1.5. Tax rates 3029.1.6. Application of transfer pricing legislation to

intra-group financing activities 3029.1.7. Interaction of thin capitalization and transfer pricing

legislation 3049.2. Intercompany loans 3059.2.1. Loan or equity 3089.2.2. Profit Participating Loans (PPLs) 3099.2.3. Interest charged 3119.2.4. Transfer pricing methods 3129.3. Guarantee fees 3139.3.1. A parent guaranteeing the debt of a wholly owned




Table of Contents

9.3.4.

9.3.5.9.3.6.9.3.7.

9.4.9.4.1.9.4.2.9.4.3.9.4.4.9.4.5.9.5.9.6.9.7.

9.8.9.8.1.9.8.2.9.8.3.9.9.9.10.

A parent company provides a guarantee to asubsidiary that is able to borrow the funds it needson a stand-alone basis, to allow the subsidiary toaccess funding at the lower cost available to theparentTransfer pricing methodsUse of range of resultsRequirement for outcomes to make commercialsenseCash poolingInterestRemuneration of cash pool leaderAllocation of cash pool benefitDocumentation <Advance pricing agreements (APAs)FactoringLeasingOther forms of financing and credit riskarrangementsSectorsOil and gas industryFinancing start-upsAutomotiveDocumentationRecommendations

318318319

319320321321322322322323325

327327327327328328329

Chapter 10: Japan 331

10.1.10.1.1.10.1.2.10.1.3.10.1.4.10.1.5.10.1.6.

10.1.7.10.2.10.2.1.10.2.2.10.2.3.10.2.4.

Corporate income tax frameworkCorporate income tax systemTaxable entitiesTaxable incomeTax lossesTax ratesInteraction of thin capitalization and transfer pricinglegislationRecent changes in the transfer pricing taxationIntercompany loansLoan or equityProfit participating loans (PPLs)Interest chargedTransfer pricing methods

331332332333333333

334334335335337338339

Table of Contents

10.3. Guarantee fees 34010.3.1. A parent guaranteeing the debt of a wholly owned




10.3.4. A parent company provides a guarantee to asubsidiary that is able to borrow the funds it needson a stand-alone basis, to allow the subsidiary toaccess funding at the lower cost available to the

/ parent 34610.3.5. Transfer pricing methods 34710.3.6. Use of range of results 34810.3.7. Requirement for outcomes to make commercial

sense 34910.4. Cash pooling 34910.4.1. Interest 35010.4.2. Remuneration CPL 35110.4.3. Allocation of cash pool benefit 35110.4.4. Documentation 35210.4.5. Advance pricing agreements (APAs) 35210.5. Factoring 35310.6. Leasing 35310.7. Other forms of financing and credit risk

arrangements 35410.8. Sectors 35410.8.1. Oil and gas industry 3 5410.8.2. Financing start-ups 35610.8.3. Automotive 35710.9. Documentation 35710.10. Recommendations 358

Chapter 11: Luxembourg 361

11.1. Corporate income tax framework 36111.1.1. Corporate income tax system and taxable entities 36111.1.2. Tax rate - Corporate income tax - Municipal

business tax 362

xxm

Table of Contents

11.1.3. Taxable income 36311.1.4. Tax losses 36311.1.5. Interaction between thin capitalization and transfer

pricing legislation 36411.2. General transfer pricing rules 36411.2.1. Overview of legal sources 36411.2.2. Article 56 LITL - Transfer of profits to a

non-resident 36511.2.3. Article 164(3) LITL - Hidden distributions 36511.2.4. Circulars L.I.R. 164/1 36711.3. Transfer pricing rules applicable to intra-group

financing transactions 36811.3.1. Scope of the circular 36911.3.1.1. An intra-group financing activity 36911.3.1.2. A Luxembourg company whose principal activity

consists in intra-group financing 37211.3.2. Obligations under the circular 37311.3.2.1. Reinforced substance 37411.3.2.2. Equity atrisk 37511.3.2.3. Transfer pricing report and margin requirement 37711.3.3. Advance pricing agreement (APA) 38011.3.3.1. Submission of an APA: An option for the taxpayer 38011.3.3.2. Content of the APA 38011.3.3.3. Validity of the APA 3 8111.4. Conclusion 382

Chapter 12: Mexico 383

12.1.12.2.12.2.1.12.2.2.12.2.3.12.2.4.12.2.5.12.3.12.3.1.

12.3.2.12.3.3.12.3.4.12.4.

Mexico overviewCorporate income tax frameworkTaxable entitiesTaxable incomeTax lossesTax ratesInteraction of thin capitalization and TP legislationIntercompany loansInterest and derivative financial transactionscovering debtLoan or equityBack-to-back loans in terms of MITLTP methodsGuarantee fees

383385386386387387388390

392393393394396

Table of Contents

12.4.1. A parent guaranteeing the debt of a wholly ownedgroup company that is unable on a stand-alone basisto borrow the debt funding it needs 397




, parent 39812.4.5. Direct explicit credit support and implicit credit

support 39812.4.6. Transfer pricing methods 39912.5. Use of range of results 39912.6. Requirement for outcomes to make commercial

sense 40012.7. Cash pooling 40212.7.1. Interest 40312.7.2. Remuneration CPL 40312.7.3. Allocation of cash pool benefit 40412.7.4. Documentation 40412.7.5. Advance pricing agreement (APA) 40512.8. Factoring 40612.9. Leasing 40712.10. Other forms of financing and credit risk

arrangements 40712.10.1. Derivatives 40712.10.2. Foreign exchange 40912.11. Sectors 40912.11.1. Oil and gas industry 40912.11.2. Financing start-ups 41012.11.3. Automotive 41012.12. Documentation 41012.12.1. Statutory requirements/regulations 41112.12.2. Documents required 41212.12.2.1. Transfer pricing documentation - Requirement 41212.12.2.2. Information return 41212.12.2.3. Statutory audited tax report (Dictamen Fiscal) 413

xxv

Table of Contents

12.12.3.12.12.4.12.12.5.12.12.6.12.12.7.12.13.

TimingPenaltyBurden of proofSmall and medium-sized enterprisesMultilateral rules or guidanceRecommendations

414414415415416416

Chapter 13: Netherlands 417

13.1. Corporate income tax framework 41713.1.1. Corporate income tax system 41713.1.2. General overview of the corporate income tax

system 41713.1.3. Specific rules on loans 41813.1.3.1. Interest in connection with certain tainted

transactions (article 10a CITA) 41813.1.3.2. Interest recharacterized as dividend (article 10(l)(d)

CITA and the Supreme Court case, BNB 1988/217) 41913.1.3.3. Long-term loans with an interest rate substantially

lower than the arm's length interest rate (article 10bCITA) 420

13.1.3.4. Acquisition debt (article 15ad CITA) 42013.1.4. Specific TP rules 42113.1.4.1. Specific guidance on financial services 42213.1.4.2. Relevant case law 42313.1.5. Interaction between thin capitalization and

TP legislation 42513.2. Intra-group loans 42613.2.1. Loan or equity 42613.2.2. Profit participating loans 42713.2.3. Interest charged 42813.2.4. TP methods 42913.2.4.1. Credit rating 42913.2.4.2. Setting the interest rate 43013.2.5. Back-to-back loans 43113.3. Guarantees 43213.3.1. A parent guaranteeing the debt of a wholly owned

group company that is unable on a stand-alone basisto borrow the debt funding it needs - 434

xxvi

Table of Contents



13.3.4. Pricing a guarantee 43413.4. Cash pooling 43513.4.1. General 43513.4.2. Setting the debit and credit rates 43613.4.3. Remuneration for the cash pool leader 43713.4.4. Allocation of the cash pool benefit 43813.4.5. Documentation 43813.4.6. Substance 43813.5. Factoring 43913.6. Leasing 43913.7. Other forms of financing and credit risk

arrangements 43913.7.1. General 43913.7.2. Hybrid financial instruments 44013.7.3. Foreign exchange 44013.7.4. Captives 44013.8. Sectors 44113.9. Documentation 44113.9.1. General rule 44113.9.2. Documenting intra-group financial transactions 44213.9.3. APA 44413.9.3.1. General 44413.9.3.2. Advance pricing agreements for intra-group financial

transactions 44413.10. Recommendations 445

Chapter 14:

14.1.14.1.1.14.1.2.14.1.3.14.1.4.14.1.5.14.1.6.

South Africa

Corporate income tax frameworkCorporate income tax systemTaxable entitiesTaxable incomeTax lossesTax ratesInteraction between thin capitalization and transferpricing legislation

447

447447447448448448

449

XXVll

Table of Contents

14.1.7. Transfer pricing framework 45014.1.7.1. Transfer pricing legislation 45014.1.7.2. Affected transactions 45014.1.7.3. Consequences - General circumstances 45214.1.7.4. Consequences - Special circumstances 45214.1.7.5. Exemptions 45314.1.7.6. Discussion 45314.1.7.7. The arm's length concept 45414.1.7.8. The independent persons requirement 45514.1.7.9. The mandatory nature of the transfer pricing

adjustment 45714.1.7.10. The nature of a tax benefit 45714.2. Intercompany loans 45814.2.1. Loan or equity 45814.2.2. Profit participating loans (PPLs) 45914.2.3. Interest charged 46014.2.4. Transfer pricing method 46114.3. Guarantee fees 46214.3.1. A parent typically guarantees the debt of a wholly

owned group company when it is unable on astand-alone basis to borrow the debt funding it needsto be able to borrow at reasonably commercial rates 463




14.3.5. Transfer pricing methods 46614.3.6. Use of range of results 46614.3.7. Requirement for outcomes to make commercial

sense 46614.4. Cash pooling 46614.5. Factoring 46714.6. Leasing 46814.7. Other forms of financing and credit risk

arrangements 470

xx vm

14.7.1.14.7.2.14.8.14.8.1.14.8.2.14.8.3.14.8.4.14.9.14.10.

GeneralTransfer pricing methodSectorsOil and gas industryFinancing start-upsAutomotiveMiningDocumentationRecommendations

Table of Contents

470471471471471472473474476

Chapter 15: Switzerland 477

15.1. Corporate income tax framework 47715.1.1. Corporate income tax system 47715.1.2. Taxable entities 47815.1.3. Taxable income 47915.1.4. Tax losses 47915.1.5. Tax rates 47915.1.6. Interaction between thin capitalization and transfer

pricing (TP) legislation 48015.2. Intercompany loans 48215.2.1. General 48215.2.2. Profit participation loans (PPLs) 48315.2.3. Interest charged 48315.2.4. Transfer pricing methods 48615.3. Guarantee fees 48715.3.1. A parent guaranteeing the debt of a wholly owned





15.3.5. Transfer pricing methods 49115.3.6. Use of range of results 492

xxix

Table of Contents

15.3.7.15.4.15.4.1.15.4.2.15.4.3.15.4.4.15.4.5.15.4.6.15.5.15.6.15.7.

15.8.15.9.15.10.

Requirement for outcome to make commercial senseCash poolingGeneralInterestRemuneration CPLAllocation of cash pool benefitDocumentationAdvance pricing agreements (APAs)FactoringLeasingOther forms of financing and credit riskarrangementsSectorsDocumentationRecommendations

493494494497497498499499500501

502503503504

Chapter 16: United Kingdom 505

16.1.16.1.1.16.2.16.2.1.16.2.2.16.2.2.1.16.2.2.2.16.2.2.3.16.2.2.4.16.2.3.16.2.3.1.16.2.3.2.16.2.4.

16.2.4.1.16.2.4.1.1.16.2.4.1.2.16.2.4.1.3.16.2.4.2.16.2.4.3.16.2.4.4.

16.2.4.4.1.16.3.

Corporate income tax frameworkCorporate income tax systemTaxable entitiesTaxable incomeTax lossesOrdinary lossesCarry forwardCarry backCapital lossesTax ratesIncomeCapital gainsInteraction between thin capitalization and transferpricing legislationUK thin capitalization rulesInterest served to related partiesThin capitalization rulesAdvance thin capitalization agreementsTransfer pricing rulesAnti-abuse provisionsInteraction between thin capitalization rules andtransfer pricing rulesDebt-to-equity ratioIntercompany loans

505505506506507507507507508508508508

509509509509510511512

512512512

16.3.1.16.3.2.16.3.3.16.3.4.16.4.16.4.1.16.5.16.5.1.16.5.2.16.5.3.16.5.4.16.5.5.16.6.16.7.16.8.

16.9.16.9.1.16.9.2.16.10.16.11.

Loan or equityProfit participating loans (PPLs)Interest chargedTransfer pricing methodsGuarantee feesTransfer pricing methodsCash poolingInterestRemuneration CPLAllocation of cash pool benefitDocumentationAdvance pricing agreements (APAs)FactoringLeasingOther forms of financing and credit riskarrangementsSectorsOil and gas industryFinancing start-upsDocumentationRecommendations

Table of Contents

512513513515516517519520520520520521521522

522522522523523524

Chapter 17: United States 527

17.1. Corporate income tax framework 52717.1.1. Corporate income tax system 52717.1.2. Taxable entities 52817.1.3. Taxable income 52817.1.4. Tax losses 52917.1.5. Tax rates 52917.1.6. Interaction thin capitalization and TP legislation 52917.2. Intercompany loans 53017.2.1. Loan or equity 53017.2.2. Profit participating loans (PPLs) 53217.2.3. Interest charged 53217.2.4. TP methods 53517.3. Introduction to guarantees 53617.3.1. Financial guarantees in the context of transfer

pricing - 53617.3.1.1. Guarantees and their impact on determining entity

credit ratings 538

xxxi

Table of Contents

17.3.1.1.1. Transfer pricing methods for benchmarkingguarantees 540

17.3.1.2. Market approach 54117.3.1.3. Yield/spread (credit enhancement) approach 54117.3.1.4. Put option approach 54217.3.1.5. Loss given default (LGD) framework 54217.3.2. Performance guarantees 54317.3.3. A parent guaranteeing the debt of a wholly owned





17.3.7.17.3.8.17.3.9.

17.4.17.4.1.17.4.1.1.17.4.1.2.17.4.2.17.4.3.17.4.4.17.4.5.17.5.17.5.1.17.5.2.17.5.2.1.17.5.2.2.17.5.2.3.17.6.17.6.1.17.6.2.

parentTransfer pricing methodsUse of range of resultsRequirement for outcomes to make commercialsenseCash poolingInterestCreditworthiness of cash pool participants and leaderImplicit guaranteesRemuneration of cash pool leaderAllocation of cash pool benefitDocumentationAdvance pricing agreements (APAs)FactoringOverviewTransfer pricingEstimating the profit elementEstimating the amount advanced to the assignorEstimating the factoring discountLeasingSafe haven lease chargeSubleases

544544545

545545546547547548548549550550550551552552552553553553

Table of Contents

17.7.

17.8.17.8.1.17.8.2.17.9.17.9.1.17.9.2.

17.10.

Other forms of financing and credit riskarrangementsSectorsOil and gas industryFinancing start-upsDocumentationPenalty provisionsContemporaneous documentation exemption forpenaltiesRecommendations

554554554555555555

556557

Transfer Pricing and Intra-Group FinancingTransfer Pricing and Intra-Group Financing The entangled...

Documents

Transcript of Transfer Pricing and Intra-Group FinancingTransfer Pricing and Intra-Group Financing The entangled...