New OECD guidance on transfer pricing guidelines for Financial Transactions (FTG)
The new guidance clarifies the process of accurate delineation for financial transactions.
The new guidance clarifies the process of accurate delineation for financial transactions. The process set out is both far more detailed and far broader than previously so current transfer pricing methodologies supporting the pricing of intra-group financial transactions may very well not stand up to challenges under the new guidance.
However, despite this increased level of sophistication and certainty, the comment at paragraph 10.9 of the FTG explicitly allows for divergence between countries on implementing approaches to address the balance of debt and equity funding of an entity and interest deductibility under domestic legislation thus increasing the risk of double taxation; whilst possibly inevitable, it is disappointing. Whether this turns out to be a significant issue and what effect it may have on the negotiation and settlement of MAP cases remains to be seen. In any event, it will be vital to have a clear audit trail in order to defend approaches taken in preparation for any challenge by taxing jurisdictions.