In February 2020, the OECD issued the Transfer Pricing Guidance on Financial Transactions (the “Paper”). Among other topics, it provides clear guidance on what elements should be considered when analyzing a cash pool from a transfer pricing point of view. Hence, the Paper is particularly relevant for all those multinational groups that have put in place a cash-pool structure.
Hence, an analysis should also consider the options realistically available for the cash-pool participants, e.g. opening a bank account at a local bank.
In cases where the cash-pool leader’s role is limited to co-ordination functions, it should earn a reward commensurate with the service functions it provides to the pool.
In the latter case, the cash-pool leader is entitled to a fee that rewards the cash-pool leader for its activities and assumed risks that go beyond mere co-ordination. This may include earning part or all of the spread between the borrowing and lending positions.
In the case of cross-guarantees, it is likely that individual participants have no control over the amount of the debt, or information about the other participants of the cash pool guaranteed. This uncertainty could become an issue from both an arm’s length and from a Swiss Commercial Law perspective.
In this context, make sure that your cash pool is not used for long-term funding to avoid potential interest rate adjustments and tax assessments.
These days, tax authorities scrutinize cash-pool arrangements more frequently. An adequate transfer pricing documentation is required in order to fulfill the OECD requirements. It is therefore recommended to provide context and detailed information on the structure and the pricing policies of the whole cash pool, making sure that your cash-pool pricing policies are well substantiated and aligned with the functional profiles of the cash-pool leader and cash-pool participants. This will help guard the hard earned benefits of your cash pool by limiting the tax exposure in the respective countries.