How to deal with the transfer pricing aspects of cash pooling?
Cash pooling is a method often used by multinational companies for cash management and intra-group financing. Cash pooling is a treasury technique to manage the short-term liquidity position of a multinational group. Important benefits of intercompany cash pooling are a reduction of external financing costs, securing short-term liquidity for participants and more control and insight in your liquid assets.
We distinguish two types, namely physical- and notional cash pooling. When we transfer money from the account of the individual entities to the bank account of the cash pool leader, we speak of the physical type. In notional cash pooling, on the other hand, we do not physically transfer the money to the bank account of the leaders. Please click the link notional pooling for more information.
The cash pool leader
Important tasks of the cash pool leader are the coordination with the bank and the participants and the control and monitoring of the relevant positions and financials. The leader must be compensated at arm’s length for the work. The leader’s compensation depends amongst others on his or her function; does the cash pool leader act as a “coordination or agency function” or on a “more than coordination or agency function”.
Challenges you might experience
Cash pooling is always intended for short-term financing and related to current accounts. It is important that the current accounts do not become a structural position. When short-term becomes long-term, it is necessary to reclassify. Long-term lending is riskier than short-term lending, which often comes with higher interest rates. Other issues you may face are how to deal with compensating the leader and the participants, (cross) guarantees and different currencies and credit ratings.
What we offer your company as transfer pricing experts
We set up the cash pool in combination with a transfer pricing policy:
- We make an analysis
- We determine the remuneration for the cash pool leader and the participants
- We advise about how to deal with cross guarantees
- We determine a policy on how to deal with structural positions
- We prepare documentation, such as the cash pooling arrangement
- We provide implementation support
- We provide monitoring support
How can our Transfer Pricing services support you with your intercompany loans?
With the support of Quantera Global, you will have a well-documented cash pool arrangement. Your intercompany cash pool will be well set up, and your company will experience multiple benefits:
a arrangement and the related documentation in compliance with transfer pricing legislation and guidance
for the organisation on how to deal with the cash pool
into best practices for a cash pool set-up and which set-up suits your situation best
administrative simplification where possible
a solution to monitor the cash pool in the future and related policies.