Last Friday the OECD has mentioned in its webcast that the final guidance on financial transactions will be released on the 11th of February. The initial non-consensus draft was published 3 July 2018 and we expect that the final guidance will, amongst others, provide more clarity on the following aspects:
– Accurate delineation of financial transactions;
– Credit rating and parental support;
– Pricing of financial transactions;
– Financial guarantees; and
– Remuneration within cash pools for both the cash pool leader and the participants.
This could have a major impact on the treatment of financial transactions, and it will be interesting to see what the OECD has done with the elaborate input given by the public on the 2018 discussion draft.
Recent developments and considerations
A key aspect of a financial transaction is the interest rate applied. In recent years, we have seen a drastic decline in interest rates, especially in Europe. Europe’s current interbank rate, the Euribor, has already been negative for a few years. This is sometimes overlooked by companies who still apply relatively high interest rates that were set in the past.
Another development is the implementation of DAC6 / new mandatory disclosure rules, which focusses on tax avoiding structures. These structures may also include financial transactions.
These developments have led to an increase in attention by the fiscal authorities (i.e. more audits) as well as our clients (i.e. more demand for assistance) in setting, defending and documenting at arm’s length interest rates and conditions for financial transactions. We believe that the attention of the fiscal authorities on financial transactions will increase even further once this guidance has been published and will, ultimately, lead to even more inquiries and audits.
QG Academy on financial transactions
Due to the significant impact of this guidance on the financial transactions landscape, we have set-up a specific course on the transfer pricing aspects of financial transactions. During this course we will also update you on the newly (to be) published guidance and the impact it may have on your company.
We invite you to join our QG Academy on financial transactions on Wednesday February 19, 2020. Please register here.