Duff & Phelps’ Global Transfer Pricing Specialists Published in Bloomberg BNA’s Transfer Pricing Forum

Managing Directors Michelle Johnson and Stefanie Perrella, Director Andrew Cousins, and Vice Presidents Michael Berbari and Zachary Held in Duff & Phelps' global Transfer Pricing practice, provide U.S. and UK perspectives regarding the OECD’s recent publication Discussion Draft on Financial Transactions addressing the Report on Actions 8-10 of the BEPS Action Plan, which includes transfer pricing guidance for related party financial transactions.

In the October 2018 issue of Bloomberg BNA’s Transfer Pricing Forum, international transfer pricing practitioners identified the current status of the country’s specific rules, best practices and court cases applicable to determining and supporting the arm’s length nature of intercompany financing transactions (including the terms of the instrument and the pricing of the transaction) and the potential impact of the discussion draft.

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The topic on the arm’s length nature of intercompany financing transactions included commentary on the following:

  1. How does your country identify and adjust related party financing transactions? What is your country’s approach to determining whether the debt arising from a related party financing transaction should be properly characterized as debt?
  2. What rules or guidance exist in your country to determine the arm’s length interest rate for a related party financing transaction?
  3. Besides the determination of whether a transaction’s interest rate is at arm’s length, what other factors does your country consider in deciding whether the related party financing is arm’s length and acceptable overall? Examples of additional factors may include: contractual terms, functions of the companies involved, characteristics of the companies’ financial products or services, economic circumstances or business strategies.
  4. If it is determined that any part of a related party transaction should not be characterized as debt, what are the consequences to both the borrower and the related lender?
  5. Are there any relevant court cases or tax rulings in your country dealing with the transfer pricing of intercompany financing transactions?
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