On January 31, 2020, the OECD hosted a webcast that provided an update on the work relating to the tax challenges arising from the digitalization of the economy, as well as a number of recent and upcoming developments.
During this webcast, the publication of the long awaited final guidance on transfer pricing aspects of financial transactions was announced. The OECD stated that the final guidance will be published on February 11 and added to the OECD Transfer Pricing Guidelines as a new chapter, to which in general the Netherlands strictly adheres. The final guidance will be the result of the initial non-consensus discussion draft on financial transactions, published on July 3, 2018, and the comments provided during the consultation process.
The new chapter will address not only intercompany loans, but also cash pools, hedging, financial guarantees and captive insurance. We are particularly interested to see which points of consensus have been reached in the final guidance on topics such as (i) the accurate delineation of financial transactions, (ii) whether the arm’s-length principle can be used to evaluate the capital structure of a related borrowing entity and (iii) guidance on the appropriate starting point to establish a credit rating for a related party borrower. We believe that a significant portion of the discussion draft’s concept and characteristics of the financial arrangements, noted above, does not yet provide the required detail to guide taxpayers through to a clear conclusion. We therefore hope that the final guidance provides companies with clearer guidance on these topics.
Will it affect your business?
The new guidelines affect a very wide range of companies, so chances are that you are too! Tax authorities already apply many principles in line with the draft OECD guidance and have also been contributing to the OECD guidance. In practice, we have already seen an increasing interest by tax authorities in various jurisdictions in intercompany financial transactions and expect that the new guidance will only further increase the attention and scrutiny of tax authorities. We advise businesses to consider how transfer pricing policies in place might be viewed in light of the final guidance principles. We recommend that transfer pricing policies and underlying transfer pricing documentation be aligned with the new guidance.
At Meijburg, our team of Financial Transactions Transfer Pricing specialists can assist your company in setting up, substantiating and documenting the appropriate transfer pricing policies for financial transactions in line with the new guidance from the OECD. In addition, our specialists have a well-known reputation for concluding agreements on financial transactions with tax authorities.
Would you like to know how these OECD developments may impact your company? Find out during one of the three events we are hosting on this topic in March (in Eindhoven, Rotterdam and Amstelveen) to discuss the final guidance and address practical issues and challenges for international businesses. Visit our website for more information or register for one of the events covering this topic.