Intragroup Financial Transactions and the Latest OECD Guidelines: Forewarned is Forearmed

The shutdown of part of the global economy is putting corporate treasuries under massive pressure. Group treasurers provide liquidity to the group together with their external financial partners and group entities located around the world. The tools in place (cash pooling, revolving credit facilities, lines of all types…) are working at full capacity and demonstrate their benefits and resilience.

For several years, the treasury operations have often been framed in the transfer pricing policy. However, in these survival operations, cash requirements increase and exceptional intragroup cash transactions may take place.

In February 2020, the OECD published the result of years of work on group financing: “Transfer Pricing Guidance on Financial Transactions”. It is an extension of the work of the BEPS programme on interest deductibility (action 4) and transfer pricing and documentation issues (actions 8-10).

Let us urge our treasury colleagues to keep in mind that the intragroup transactions of 2020 may one day (in 2/3 years) be audited by tax administrations in the light of the OECD guidance, including the guidance published in February 2020. This audit will take place at a time when the immensity of the 2020 economic and health catastrophe may (hopefully) no longer be critical.

Here are some tips we give to treasurers to help them avoid falling into funding transfer pricing traps. We would expect that most of these tips are already applied, so we have prepared brief reminders:

• document the implementation of financial support and group guarantees;
• plan maturity dates and repayment schedules;
• check the borrower's ability to repay the financial assistance;
• avoid injecting financial support in the form of debt that would be reclassified as capital support;
• determine funding conditions considering market conditions;
• check that the intragroup financing put in place is the most reasonable option for the borrower.

Charles Lienard and David Abrehart