Commentary

B4.150A OECD guidance on financial transactions and transfer pricing

Business tax
Business tax | Commentary

B4.150A OECD guidance on financial transactions and transfer pricing

Business tax | Commentary

B4.150A OECD guidance on financial transactions and transfer pricing

The OECD issued guidance on the transfer pricing aspects of financial transactions1 in February 2020, these form Chapter X of the main OECD guidelines2 on transfer pricing. The additional guidelines on financial arrangements aim to clarify the application of the principles set out in the main OECD guidelines, see B4.140–B4.136. The financial transactions guidance covers the following topics:

  1.  

    •     determining whether a loan should be regarded a loan for transfer pricing purposes (see below)

  2.  

    •     identifying the commercial or financial relations (see below)

  3.  

    •     intra-group loans (see below)

  4.  

    •     treasury functions (see B4.152)

  5.  

    •     financial guarantees (see B4.151)

  6.  

    •     captive insurance

  7.  

    •     risk-free and risk-adjusted rates of returns

Determination of whether a loan should be regarded a loan for transfer pricing purposes

Under the main OECD guidelines, the authoritative statement of the arm's length principle is found in the OECD Model Tax Convention on Income and on Capital Article 9 para 1. The commentary to Article 9 states that whether a loan can be regarded as a loan or as some other kind of payment is relevant to establishing the arm's length principle. Where the arrangements made in relation to the financial transaction differ from those which would have been adopted by independent enterprises in comparable circumstances then the pricing of the actual transaction, as delineated under the arm's length principle should be

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