The Report consists of six sections. Sections A to E are going to be integrated into the OECD Guidelines as a new separate chapter No. X. Guidance included in section F related to risk-free and risk-adjusted rates of return are going to become part of the current chapter I of the OECD Guidelines. A summary of the most important points of the Report is given below:

Exact delineation of intra-group financial transactions

The Report comments on areas within the analysed transaction, which should not be omitted when assessed. The delineation of the financial transactions should begin with a proper identification of economically significant characteristics including examination of the contractual conditions, performance of functional and risk analysis, characterisation of wider economic conditions and business strategy of the counterparties and the group.

 Treasury function

The Report states that the treasury function can differ throughout individual groups, in particular if the level of centralisation, autonomy and operation of the treasury is taken into consideration. The remuneration for the performance of the treasury function should correspond to the degree of functions performed and risks borne.

Intra-group loans

The explicit declaration that both the perspective of the borrower and the one of the creditor should be taken into account when pricing intra-group loans is very useful because in practice more emphasis is often placed on the borrower’s perspective. In order to determine the arm’s length interest rate of an intra-group loan, above all the borrower’s credit rating should be taken into account and, if appropriate, the one of the group and the parameters of the particular financial instrument. In any case, both quantitative (e.g. financial results) and qualitative factors (e.g. industry) need to be considered. To assess the creditworthiness of the borrower, the level of implicit support resulting from membership in a group should also be taken into account. The credit rating of a company that is strategically linked to other companies within the group should be close to the group’s credit rating, whereas a less key company should be seen more as a separate borrower. Furthermore, the Report summarises transfer pricing methods to determine the correct level of arm’s length interest rate and points out that an opinion from an external bank does not represent an actual offer for the transaction and is therefore not considered as an evidence of compliance with the arm’s-length principle.

Cash-pooling

Given the fact that the arrangements pertaining to cash-pooling have been more closely examined by tax authorities in recent years, recommendations on the setting of cash-pooling represent a welcome area. Cash-pooling should involve strong emphasis on the functions performed, risks borne and benefits brought to the participants. If the cash-pool leader performs functions of a more coordinative nature and bears no important risks, it should accordingly receive a routine compensation. If the cash-pool leader performs more complex functions, bears (and has the capacity to bear) and controls financial risks, this should be reflected in its compensation. Documenting these functions and risks is also crucial.

Financial guarantees

The Report also describes possible approaches to the pricing of financial guarantees between related parties, typically when the guarantor provides a guarantee for loans granted by an unrelated creditor. The Report explicitly notes that guarantee transactions are normal intra-group transactions, which are subject to transfer pricing rules and should be treated accordingly. Situations involving explicit guarantees differ from the so-called implicit support. In the case of an explicit guarantee, the debtors would not generally be willing to pay for the guarantee unless they expect to gain an appropriate benefit in addition to the implicit support.

Following the release of the Report, we can expect increased attention of the tax authorities in the area of financial transactions. With regard to the above, we recommend reviewing the intra-group financing setting or other financial transactions and documenting it appropriately.