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Intra-group financing – aspects to consider?

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PwC-skatteradgivning-Form.pngMultinational groups have been facing challenges when the transfer pricing of intra-group treasury operations and financing services have come into the limelight in recent months. With today’s low interest rates, corporate groups have the possibility of adapting their internal policies regarding intra-group financial services without the effects that were previously experienced in doing so.

Regardless of the type of financing structure a company chooses to implement, there is a requirement of having correct (arm’s length) compensation for intra-group financial services. In order to determine the correct (arm’s length) pricing, an analysis of the actual situation and policies applied must be undertaken. Correct pricing is usually determined based on traditional transaction-based transfer pricing methods, where a comparison with equivalent transactions between independent parties (for example, trading in bonds where the risk is priced on an ongoing basis based on various terms and conditions) is made. With independent pricing information, multinational groups can adopt a centralized financing model and determine and justify their transfer prices in a relatively effective manner.

OECD’s initiative under the so-called BEPS Project (Base Erosion and Profit Shifting), and the new international guidelines arising therefrom, have implied challenges for international companies engaged in cross-border transactions. Within the near future, we expect that these particular rules will be supplemented with detailed regulations for the pricing of financial transactions. However, considering the current low level of interest rates and lack of detailed rules, the associated risks have been limited, which is also the case for the tax authorities’ interest in examining similar transactions in this context. It should be emphasized that these risks tend to increase in a higher interest rate environment with increased transaction volumes and increased taxes as a result.

The methodology for applying the currently recommended traditional transaction-based methods takes the risks that can be associated with financial transactions into consideration and maintains that the allocation of these risks comprises the primary indicator of an appropriate allocation of the compensation. Consequently, companies should carefully analyse whether the final intra-group pricing and compensation paid for the services is in line with the risks and responsibilities borne by the respective parties. In addition, with the new documentation requirements from the BEPS project, multinational groups must report their financing strategies and the transfer pricing models applied which, in turn, should be evidenced as well-grounded and robust.

In view of the increased focus on risk assumption, multinational companies must ensure that each financial cross-border transaction is identified and carefully analysed whereby the pricing in relation to the decision-making entities and risk assuming entities is seen to be decisive. However, due to the continually changing international financing market (for example, fluctuating interest rates) and the varying means by which companies structure their internal financing, alternative methods can be appropriate to either replace or supplement the traditional transfer pricing methods. With the alternative methods, aspects such as the parties’ liquidity and cash management, as well the dynamics of the financing market, are considered in the pricing of financial services. As a result, challenges arise when companies are to take both risk assumption and decision-making into consideration in their transfer pricing methodology, in combination with other relevant aspects constituting an important part of the pricing of financial services. However, today’s low interest rates provide an excellent possibility for multinational groups to correct and adapt their internal policies for these types of operations.


There are many of us who are awaiting the new guidelines from OECD regarding financial transactions between associated companies. The new guidelines are expected to provide assistance and clarifications within the area of transfer pricing in relation to intra-group financial services and will probably be issued during the first or second quarter of 2018.

In the meantime, we at PwC are happy to discuss these types of issues with the perspective of both general international corporate taxation for financial operations, as well as transfer pricing in matters of intra-group financial services and financing models.

Do you have any questions on corporate taxation?

Pär Magnus Wiséen

Pär Magnus Wiséen

Pär Magnus Wiséen arbetar på skatteavdelningen på PwC:s kontor i Stockholm med internprissättning och frågor som uppstår i samband med omstruktureringar och förändringar inom större koncerner.
010-213 32 95

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