icon Financial transactions

Financial transactions

Transfer Pricing attention towards financial transactions has taken a flight in recent years and has further increased after the release of the OECD Guidance on this topic in February 2020.

Our financial transactions team supports our clients in this field and offers all types of analyses relating to intercompany financial transactions. We provide the following services in this category:

Design

  • Analysis of intercompany financial transactions (e.g. qualification of financial instrument, debt capacity, two-sided approach, options realistically available).
  • Transfer Pricing analysis and benchmarking for intermediary financing structures.
  • In-house bank / treasury policies.
  • Thin Capitalisation analysis, including advice on the interest deductibility rules.
  • Investment management, real estate and funds Transfer Pricing advice.
  • M&A Transfer Pricing support: due diligence, structuring and acquisition financing.
  • Captive insurance policies, documentation and benchmarking.

Intercompany loans

  • Full-fledged analysis (i.e. terms and conditions, accurate delineation of the transaction etc.).
  • Credit rating analysis.
  • Determining / testing interest rates using:
    • CUP analyses for loan and bond data
    • Yield curve analyses
    • Economic models to set interest rates
    • Cost of fund analysis.
  • Support in setting-up a monitoring process and analysing (existing) risk control mechanisms.

Cash pools

  • Design and analysis of the cash pool structure, the terms & conditions and the transfer pricing policy (to be) applied.
  • Determining the remuneration of the cash pool leader.
  • Documenting the risk exposure of, and the remuneration for, the cash pool participants and relevant cross guarantees.

Financial guarantees

  • Design and analysis of the financial guarantee, including determining:
    • the economic benefit derived from the guarantee
    • the effect of group membership
    • the risk exposure of the guarantor
    • the financial capacity of the guarantor.
  • Determining financial guarantee fees using amongst others the following methods:
    • CUP method
    • Yield approach
    • Cost approach
    • Valuation of expected loss method
    • Capital support method.

Captive insurance

  • Design and analysis of the captive insurance structure, including a consideration of:
    • whether actual risks are borne by the insurer.
    • whether risk diversification has been achieved.
  • (support in the) pricing of premiums.
  • Determining the remuneration for captive insurance, including amongst others:
    • Benchmarking the combined ratio of unrelated parties.
    • Determining the return on investment.

Implementation & Documentation

  • Determining credit ratings.
  • Determining equity at risk, equity at risk premiums and handling fees for flow-through companies.
  • Benchmarking and documentation of interest rates and guarantee fees.
  • WACC analyses.
  • Holding structure substance reviews.
  • General negotiations with tax authorities and assistance during an audit, including APAs/MAPs.
  • Implementation of in-house banks.

For further information on this topic we would like to refer you to our brochure.