Final guidance on transfer pricing aspects of financial transactions is published
On 11 February 2020, OECD published a final guidance on transfer pricing aspects of financial transactions as part of the relevant BEPS action plans. This report has a significant importance, since it is the first time that the guidelines include rules for financial transactions. The new chapters address not only intercompany loans, but also cash pools, hedging, financial guarantees and captive insurance. The guidelines also deal with the accurate delineation of financial transactions, the appropriate starting point to establish a credit rating for a related party borrower. The new guidelines will contribute the consistency in the interpretation of the arm’s length principle (rules regarding the market price and conditions) and help avoid the transfer pricing dispute and double taxation.
It should be noted however that it may also give a cause to the tax authorities to broaden the spectrum of tax investigations, as such, the companies may expect more tax investigation in respect of the financial transfer pricing.