The LIBOR transition impacts tax and transfer pricing (TP) related documentation, agreements and systems enablement significantly. Successfully mitigating this impact requires planning and the joint effort of internal and external stakeholders. Find out how to get started and what issues to consider.
What are some of the challenges posed by the LIBOR transition?
For the past 20 years, LIBOR has been the de facto industry standard for most intercompany funding arrangements. And, consequently, it’s a key part of tax and transfer pricing (TP) related documentation, agreements and systems enablement such as in-house banking solutions. Decommissioning the LIBOR benchmark in 2021 impacts most organizations with internal financing arrangements and has significant implications. Mitigating its impact requires planning.
The potential tax challenges for taxpayers arising from the LIBOR transition include revising:
- the principles of existing intercompany funding arrangements
- all aspects of documentation, policies and agreements underpinning those arrangements
- in-house banking and similar systems set-up
- various rulings and arrangements involving tax authorities including advance price agreements (APAs).
What timeline should you consider to prepare for the (tax) transfer pricing LIBOR transition?
As with the wider phaseout plan, you can and should start tax and TP transition now to prepare for the end of LIBOR updates at the end of 2021.
To successfully manage the LIBOR transition, we recommend that you perform your impact assessment and outline your transition plan from a tax and transfer pricing point of view in 2019.
As a practical matter, many of the steps required for the tax and TP impact assessment are similar to the broader impact assessment from a treasury perspective (e.g. inventory of LIBOR linked products and positions, review of agreements). Many organizations are therefore taking a coordinated approach to managing the tax, treasury and commercial impact.