Stefanie Perrella and Beau Sheil Published in Tax Notes International: The OECD Dives Into Cash Pools

Stefanie Perrella, Managing Director, and Beau Sheil, Director, in Duff & Phelps Transfer Pricing practice, authored an article in Tax Notes International titled, “The OECD Dives Into Cash Pools”. On February 11, 2020, the OECD issued its final “Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS: Actions 4, 8-10,” whose chapters A-E will be incorporated as Chapter X of the OECD transfer pricing guidelines. The report was developed as part of actions 4 and 8-10 of the OECD’s base erosion and profit-shifting initiative and represents the organization’s first finalized guidance on transfer pricing for financial transactions. In light of Chapter X, taxpayers engaging in intercompany financing transactions in countries that follow the OECD transfer pricing guidelines may need to consider changing how those transactions are structured, priced and documented.

This article focuses on the new Chapter X guidance as it relates to cash pool arrangements. Cash pooling is a solution many companies use to optimize cash management, whereby the cash balances generated by a defined group of legal entities are consolidated. The consolidation can be physical (meaning cash balances are transferred and consolidated into a single account) or notional (meaning balances are aggregated across participants without transferring balances across accounts). Whether physical or notional, cash pooling can generate benefits for companies, including, notably, savings on the overall interest paid on short-term financing. Other benefits of cash pools include access to liquidity that might not otherwise be available and reduced exposure to external banks.

Subscribers of Tax Notes can access the full article here.