Plain English
Once you know the pool as a whole saves the group money, someone has to decide how that saving is split — how much interest depositors earn, how much borrowers pay, and how much of the difference between those two rates stays with the pool leader versus flows back to participants. Getting this allocation wrong means some subsidiaries effectively subsidise others' financing costs for free.
Technical definition
Cash pool interest allocation is the process of setting arm's length deposit and lending rates for pool participants and allocating the resulting synergy benefit (the interest cost saving generated by pooling relative to standalone external financing) among participants and the pool leader, based on their relative contribution and risk, in accordance with OECD Chapter X paragraphs 10.133–10.138.
Why it matters
Misallocation systematically shifts economic benefit to or from specific participants over time, and because balances and rates change daily, an undocumented or ad hoc allocation methodology is difficult to defend retrospectively across an audit period.
How it works in practice
- 01Determine the standalone deposit and borrowing rate each participant would achieve without the pool.
- 02Determine the pool's actual (better) external deposit and borrowing rate as a whole.
- 03Calculate the total synergy benefit as the difference between standalone and pooled costs.
- 04Set internal deposit and lending rates for participants, typically between the standalone and pooled rates.
- 05Allocate any residual benefit to the pool leader only to the extent its function and risk justify it.
Worked example
Splitting a EUR 400,000 synergy
Standalone, the group's depositors would earn 1% and its borrowers would pay 6%; pooled, the bank offers the group a blended facility at an effective 3% net cost, generating a EUR 400,000 annual synergy across average balances. The allocation policy sets internal deposit rates at 2% (up from the 1% standalone rate) and internal borrowing rates at 4% (down from 6%), splitting roughly 75% of the synergy to participants and retaining about EUR 100,000 for the pool leader's coordination function, consistent with its cost-plus remuneration model.
Common mistakes
- Setting internal rates identical to the pool's blended external rate for all participants regardless of whether they are net depositors or borrowers.
- Allocating the full synergy benefit to the pool leader without functional justification.
- Failing to revisit the allocation policy when the mix of depositors and borrowers shifts materially.
Audit red flags
- Net depositor participants earning less interest internally than they would standalone.
- No documented methodology explaining how internal rates were derived from external pool terms.
- Allocation policy unchanged for years despite a materially different participant mix.
Documentation & data
Documents to hold
- Rate-setting policy and synergy benefit calculation.
- Standalone versus pooled rate comparison by participant.
- Allocation rationale, cross-referenced to pool leader remuneration analysis.
Data you need
- Standalone bank quotes or proxies for each participant.
- Actual pooled external facility terms.
- Historical participant balance mix (net depositor vs net borrower).
Who owns this internally: Group treasury sets rates operationally; tax reviews and documents the allocation methodology annually.
Jurisdiction notes
- OECD
- Chapter X paras 10.133–10.138 require that no participant be left worse off than its standalone position purely to benefit the pool leader or other participants.
- Germany/France
- Both jurisdictions have specifically examined whether net depositor entities receive an adequate share of the synergy benefit.
Notes by role
Advisors & consultants
Always benchmark participants' standalone position as the floor — no participant should be worse off in the pool than it would be outside it.
In-house tax teams
Revisit the allocation policy whenever the balance mix shifts structurally, such as after an acquisition changes which entities are net depositors.
Frequently asked
- Should every participant get an identical internal rate?
- No — typically a separate deposit rate and borrowing rate apply, both better than standalone terms but not identical to each other.
- How often should the allocation be reviewed?
- At least annually, and whenever the pool's external terms or participant mix changes materially.
Sources & status
- Primary source
OECD Transfer Pricing Guidelines, Chapter X, paras 10.133–10.138
OECD, 2022
Reference material only, not advice on a specific fact pattern. Reviewed 2026-06-30.
Careers
How this shows up in the job
Being able to numerically walk through a synergy allocation is a practical skill that separates candidates who understand cash pooling from those who only recite the theory.
Careers in transfer pricing