close
Share with your friends

OECD: Transfer pricing guidance on financial transactions

OECD: Transfer pricing guidance financial transactions

The Organisation for Economic Cooperation and Development (OECD) today released a report providing transfer pricing guidance on financial transactions.

1000

Related content

The OECD report—Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS: Actions 4, 8-10—is the first time that the OECD Transfer Pricing Guidelines include guidance on the transfer pricing aspects of financial transactions. It is anticipated that today’s guidance will “contribute to consistency in the interpretation of the arm’s length principle” and will help avoid future transfer pricing disputes as well as double taxation issues.

As further explained by the OECD in today’s release, the OECD/G20 in October 2015 published reports on base erosion and profit shifting (BEPS) Action 4 (Limiting base erosion involving interest deductions and other financial payments) and BEPS Actions 8-10 (Aligning transfer pricing outcomes with value creation). Both of these reports required follow-up work on the transfer pricing aspects of financial transactions.

The guidance in today’s report describes the transfer pricing aspects of financial transactions, and in particular:

  • There are a number of examples to illustrate the principles discussed.

  • There is guidance on the application of the principles contained in provisions of the OECD Transfer Pricing Guidelines to financial transactions.

  • Today’s report elaborates on how the accurate delineation analysis applies to the capital structure of a multinational entity (MNE) within an MNE group.

  • The report also clarifies this guidance does not prevent countries from implementing approaches to address capital structure and interest deductibility under their domestic legislation.

  • The report outlines the economically relevant characteristics that inform the analysis of the terms and conditions of financial transactions, and addresses specific issues related to the pricing of financial transactions (including treasury functions, intra-group loans, cash pooling, hedging, guarantees, and captive insurance).

  • The analysis in the report elaborates on both the accurate delineation and the pricing of the controlled financial transactions.

  • There is also guidance provided on how to determine a risk-free rate of return and a risk-adjusted rate of return.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal