OECD releases the final Transfer Pricing Guidance on Financial Transactions

Transfer Pricing Guidance on Financial Transactions

OECD has issued the final Transfer Pricing Guidance on Financial Transactions, as part of the inclusive framework on Base Erosion and Profit Shifting (BEPS).



Annika Lindström

Partner & Head of Tax & Legal

KPMG i Sverige


On Tuesday, OECD issued the final Transfer Pricing Guidance on Financial Transactions (PDF 666 KB), as part of the inclusive framework on Base Erosion and Profit Shifting (BEPS). The report aims to provide guidance on financial transactions that have been a frequent source of disagreement between tax agencies and taxpayers.

The report provides guidance on the pricing of common intra-group financial transactions, such as loans, cash pools, hedging transactions and guarantees. The report also provides guidance on the treatment and pricing of captive insurance transactions.

The report builds on the discussion draft published in July 2018, with relatively few changes introduced in arriving at a consensus document. Accordingly, the report retains some of the most discussed guidance from the discussion draft, particularly the guidance on the delineation of financial transactions, which should precede the determination of arm’s length pricing. Multinational groups, in pricing their financing transactions shall now look beyond the contractual terms of the transaction, with consideration to be given to the full set of circumstances surrounding the transaction and the options realistically available to both transaction parties. On the other hand, the final report omitted the specific pricing approaches proposed for intra-group cash pool transactions, in favor of more high-level guidance.

Importantly, the report may close the door on several pricing approaches still commonly used in intra-group financial transactions, including the use of the group’s average funding rate and bank quotes in pricing lending transactions. In addition, the report could limit the profits that could be attributed to group financing companies. Financing companies with limited or no control over the financial risks they contractually assume in intra-group financial transactions should be entitled to no more than a risk-free rate of return.

KPMG  Comment

The OECD report represents the most comprehensive guidance on the transfer pricing of financial transactions, whereas most of the previous guidance had been provided by domestic interpretations and case law. The OECD guidance should provide some certainty to taxpayers and eliminate some of the disagreements and differing interpretations between the countries. However, the report also provides tax agencies with a tool in tax audits, particularly where there is little substance or commercial rationale in the transactions.

Groups with intra-group financial transactions should review whether their existing and planned financial arrangements are consistent with the new guidance in the report, and what mitigating actions can be taken to address any differences.

You are welcome to contact us should you have any questions regarding the potential consequences for your business.

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The OECD press release 2020-02-11

The article in Swedish

Annika Lindström

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