News and developments
OECD releases Transfer Pricing Guidance on Financial Transactions
The Report in general describes the transfer pricing aspects of financial transactions, and also provides a number of examples to illustrate the principles discussed. The Report is focused on the following 5 sections:
Identifying the commercial or financial relations
This section of the Report concentrated on whether a prima facie loan should be regarded as a loan or should be regarded as some other kind of payment, in particular a contribution to equity. It also clarifies that the guidance included in this Report does not prevent countries from implementing approaches to address capital structure and interest deductibility under their domestic legislation.
Further, the report stresses the importance of accurate delineation of financial transactions and outlines five economically relevant characteristics that form the analysis of the terms and conditions of financial transactions. These economically relevant characteristics are:
- Contractual Terms
- Functional Analysis
- Characteristics of Financial Instruments
- Economic Circumstances
- Business Strategies
- Intra-group loans
- Cash pooling
- Hedging
- CUP method
- Yield approach
- Cost Approach
- Valuation of expected loss approach
- Capital support method