Financial transactions
Intercompany loans, cash pooling, guarantees, and credit ratings — and the borrower-side analysis tax authorities now expect before a rate is chosen
Financial transactions are where transfer pricing has moved fastest and where most groups have moved slowest. An intercompany loan priced by picking a plausible rate and finding a yield curve to support it was common practice for years. Since the OECD’s 2020 guidance, examiners start from a different question: whether the borrower could have borrowed that money at all, and on what terms.
This cluster covers financial transactions in working detail — how to price an intercompany loan from credit rating to interest rate, how cash pools and guarantees should be rewarded, how to build a stand-alone rating, and when debt is really equity. Written for the treasury and tax teams who share the file and the practitioners who defend it.
How to price an intercompany loan, from rating to rate.
Most intercompany loans are priced by choosing a rate that looks reasonable and finding a curve to justify it. This is a mistake. The sequence that actually produces a defensible rate — delineation, debt capacity, credit rating, implicit support, comparable debt — and the six gaps examiners find first.
Read the full article →In this article
- The rate-first problem
- Delineation: is it really a loan?
- Debt capacity: could the borrower have borrowed this?
- Credit rating: stand-alone or group?
- Implicit support: the passive association effect
- Comparable debt: yields, spreads, and adjustments
- The U.S. safe haven: when the AFR range applies
- Six gaps examiners find in loan pricing
Five pieces, each on one part of the work.
The pillar above is the comprehensive starting point. The articles below go deeper on individual elements — cash pooling, guarantees, credit ratings, debt capacity, and captive insurance and hedging.
Cash pooling: who earns the benefit, and how to share it
A cash pool creates a synergy benefit that has to land somewhere. How the pool leader should be rewarded, how the benefit is shared among participants, and why balances that never move are really loans.
Financial guarantees: when a fee is due, and how much
An explicit guarantee can be a service, a shareholder activity, or support the borrower already had. When a fee is warranted, the yield and cost approaches to pricing it, and how implicit support changes the answer.
Credit ratings for subsidiaries: building a defensible stand-alone rating
Nearly every loan analysis rests on a rating no agency ever published. How to build one from financial data and rating methodology, when the group rating is the better proxy, and where each approach breaks.
Debt capacity and thin capitalization: when a loan is really equity
Part of a loan an independent borrower could never have obtained may be treated as equity. How debt capacity is tested, how it interacts with domestic interest limitation rules, and how to document the amount.
Captive insurance and hedging: the financial transactions nobody benchmarks
Intra-group insurance and treasury hedging carry real risk and real pricing questions. When a captive genuinely bears risk, how premiums should be tested, and which entity should keep the hedging result.