The UN released an updated draft on financial transactions in April 2019, which in addition to the discussion draft released by OECD in 2018, provides guidance on the disputes in transfer pricing issues. Here we compare the two drafts and advanced domestic practices (i.e. the UK and Australia).
When comparing different key variables to determine (i) an acceptable D/E level; (ii) an acceptable interest rate (includes guarantee fees), OECD draft, UN draft, UK legislation, Australian legislation require the following checks:
- Do you apply the arm’s length principle?
- Are you obliged to reclassify interest income?
- Do you need to conduct the debt capacity analysis?
- Can you use the credit rating of lender and/or borrower to support your pricing?
- Should you consider implicit support from other group companies as a factor?
- Have you chosen the appropriate method?
- Are you subject to other legislations related to treasury activities (e.g. thin capitalization rules; safe harbor; anti-avoidance rules)?
- What is the sequence to follow for different sets of rules (e.g. D/E ratio vs. Interest rate)?
Click on the button below for the detailed schedule TPA Global uses for the creation, implementation, and documentation of TP systems for Treasury activities.