OECD publishes final guidance on intragroup financial transactions

OECD publishes final guidance

On 11 February 2020 the Organisation for Economic Co-operation and Development (“OECD”) released for the first time a final guidance on financial transactions. The work stems from the work undergone through Base Erosion and Profit Shifting (“BEPS”) Action 4 and Actions 8-10.


The document is now part of the OECD Transfer Pricing Guidelines and addresses the analysis of intragroup financial transactions, including loans, cash pools, hedging, financial guarantees and captive insurance and reinsurance.

What is in the new guidance?

The guidance examines the accurate delineation of the actual financial transactions with consideration given on the existing relationships between the parties, the economic substance of the lender, the borrower’s capacity to serve the debt, the benefits from the guarantees and the cash pools, as well as the appropriate transfer pricing methods for analysis for each type of intragroup financial transactions along with the specifics of their application.

Valuable insight is provided on the credit rating analysis and the proper assessment of the implicit support from the group (“the halo effect”).

What are the potential challenges?

With mandatory Transfer Pricing documentation introduced in the Bulgarian legislation, 2020 will be the first year for which the qualifying Bulgarian entities will be obliged to prepare local file and master file in line with the new rules.

In the course of a future tax control (including also Double Tax Treaty application procedures), along with other transactions Bulgarian taxpayers may expect thorough analysis and increased scrutiny by the revenue authorities also with regard to intragroup financial transactions.

In view of this, it would be crucial for taxpayers to review and assess in advance the impact of the new guidance on their intragroup financial transactions and their documentation. The analysis would require inter alia consideration whether the actual financial transactions and the substance correspond to the contractual arrangements, detailed review of possible internal comparables, proper determination of the credit rating, finding relevant comparable financial transactions and performance of comparability adjustments, if necessary.

Preparing a benchmarking for the financial transactions requires a different approach and use of specialized databases. The traditionally used databases for commercial transactions will not give the required information that will allow the companies to benchmark the terms of their financial transactions.

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