Transfer pricing of financing arrangements

A wide range of financing arrangements are used within groups, whether arising from day to day transactions or as an intentional part of structuring arrangements. Financing, in particular, is an area that often does not get the same attention from a transfer pricing perspective as other transactions. A new focus on the area is expected, stemming from a mixture of new documentation standards, high profile cases and updated OECD guidance. The following approaches may be relevant when considering the transfer pricing position of financing arrangements: direct comparison with arm’s length offers or agreements; credit scoring and bond pricing; market studies and ratio-based approaches; covenant-based assessment; and peer group review. Specific considerations should be given to: leveraged corporate acquisitions; real estate backed loans; intra-group working capital loans; cash pooling arrangements; guarantees; and on-lending arrangements.