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    icon Financial transactions

    Financial transactions

    The attention paid to transfer pricing in financial transactions has increased in recent years and has further increased following the publication of Chapter X of the Transfer Pricing Guidelines. The 2020 edition provides specific guidance on financial transactions.

    Our financial transactions team supports our clients in this field and offers all types of analyses related to intercompany financing. Some topics to which our analyses relate are:

    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.

    Read more about intercompany funding

    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
      • Credit default swap analysis
    • Support in setting-up a monitoring process and analysing (existing) risk control mechanisms.

    Read more about intercompany loans

    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.

    Read more about cash pools

    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.

    The transfer pricing challenges of financial transactions

    Since the publication of Chapter X of the OECD Guidelines, financial transactions have attracted increasing attention from tax authorities and MNEs. Your company may face challenges in setting at arm’s length prices for intercompany loans, guarantees and cash pooling structures, as well as preparing proper transfer pricing documentation. Complexity has increased, partly because of the regulatory landscape driven by the OECD, European Commission and the national tax authorities.

    Our approach and value propositions

    Our core business is to provide transfer pricing solutions that meet your requirements and needs. Quantera Global has a team that specialises in all transfer pricing aspects of financial transactions and does so on a daily basis. Our approach to supporting you with transfer pricing financial transactions:

    • We make a baseline measurement of the past/ current design to assess potential opportunities and risks: Aligning past financing structures (e.g. safe harbors) with the new economic reality.
    • We provide an in-depth analysis
    • We are experienced tax and finance experts
    • We team up with clients and other professional services firms
    • We understand the transaction process
    • We match activities using our global alliance network

    Financial services transfer pricing

    Quantera Global can assist your company in setting up your financial transactions policy or we can perform a baseline measurement of the current policy and analyse potential risks and opportunities. We help ensure that financial transactions are and remain at arm’s length. Our team of experts is ready to support you with your intercompany financing.

    If you would like to discuss how we can be of service to you, please make an appointment for a free consultation by phone or fill in our contact form. We are looking forward to meeting you.

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    Adriaan van der Heijden
    Senior manager