Volume 47 (2019) / Issue 12
In recent discussions as part of the Base Erosion and Profit Shifting (BEPS) initiative, the OECD has raised a number of questions regarding financial transactions relied upon in an intragroup context. These include questions on determining the shadow credit rating, implicit support, and data to be relied upon when evaluating the arm’s length nature of financial transactions. (OECD, Public Discussion Draft Financial Transactions, BEPS Actions 8–10, (3 July – 7 Sept. 2018), https://www.oecd.org/tax/transfer-pricing/BEPS-actions-8-10-transfer-pricingfinancial- transactions-discussion-draft-2018.pdf (accessed 29 July 2019).) More recently, comments by an OECD representative have asserted that a compromise between OECD members on the issue had been reached. (See comments made on 4 June 2019 by Tomas Balco (Head of the Transfer Pricing Unit, OECD Centre for Tax Policy and Administration) during the OECD International Tax Conference in Washington DC. See J. Martin, Agreement reached on OECD transfer pricing guidelines for financial transactions, official says, MNE Tax (8 June 2019), available at (accessed on 29 July 2019).) In this respect, the OECD acknowledges that Article 9 is relevant, but confirms that domestic law has priority, except to the extent that domestic provisions discriminate. This ongoing discussion demonstrates the complexity that tax payers and tax administrators face when considering financing arrangements.
Although the focus of this article is on intra-group financial guarantees in a broad sense, it focuses attention on of implicit support, a concept potentially relevant to all intra-group financial transactions. This article will also consider some of the issues currently discussed in the context of intra-group financing, including the importance and impact of implicit support on financing arrangements, from the viewpoint of tax courts, the OECD, and financial market participants. It then considers approaches used to determine the extent, if any, of implicit support by the main credit rating agencies as well as other financial market participants, and it goes on to consider the pros and cons associated with different pricing methods to assess the arm’s length level of guarantees, once credit ratings adjusted for implicit support have been derived.
All rights reserved