Financial transactions

The OECD's dedicated transfer pricing guidance on loans, cash pooling, guarantees and captive insurance, issued in 2020 and folded into the Guidelines as Chapter X.

A loan between two members of the same group, which must carry an arm's length interest rate and reflect genuine debt characteristics.

The process of finding comparable third-party loans or bonds to support an intercompany interest rate under the CUP method.

The interest rate that independent lenders and borrowers would have agreed for a comparable loan, given the borrower's actual credit risk.

A commercial database of bond issuances, syndicated loans or CDS spreads used to source comparable third-party pricing for intercompany debt.

An estimated creditworthiness rating for a group entity, used to price intercompany loans and guarantees when no public rating exists.

The credit benefit a subsidiary receives simply from being part of a stronger group, absent any explicit guarantee.

An assessment of how much debt a borrower could realistically obtain and service on arm's length terms, used to test whether an intercompany loan is genuinely debt.

Domestic statutory rules that cap the debt-to-equity ratio or interest deduction of an entity funded disproportionately by related-party debt.

Statutory rules capping net interest deductions as a percentage of EBITDA (or similar), applied regardless of whether the interest rate itself is arm's length.

The arm's length fee a group entity should pay for an explicit guarantee that improves its borrowing terms with a third party.

A financing structure where an intermediate group entity borrows from one party and on-lends on matching terms to another, typically earning a spread for the intermediation.

A treasury arrangement that concentrates a group's cash balances to net surpluses and deficits, reducing external borrowing and improving interest terms.

A cash pooling structure in which actual funds are swept daily between participant accounts and a master account.

A cash pooling structure where account balances are notionally offset by the bank for interest calculation purposes without any actual transfer of funds.

The arm's length reward for the entity operating a cash pool, calibrated to the functions it performs and the risks it actually bears.

The methodology for setting deposit and borrowing rates within a cash pool and dividing the resulting synergy benefit among participants.

Benchmarking the arm's length interest rate payable on an intercompany cash deposit, distinct from loan interest rate benchmarking.

The arm's length interest that should apply when an intercompany trade receivable is outstanding beyond normal commercial payment terms.

An arrangement where a group entity purchases another group entity's trade receivables at a discount, taking on collection risk and providing immediate liquidity.

Arrangements where a group treasury centre enters derivative contracts with operating entities to manage their currency, interest rate or commodity exposure, often mirrored externally.

The overall discipline of applying arm's length pricing across all of a group's centralised treasury activities — loans, cash pooling, guarantees, hedging and FX.

A banking-sector internal management accounting technique for allocating funding costs and benefits across business units, distinct from but sometimes confused with tax transfer pricing.

The governing document that sets out how a group's intercompany financing, cash pooling, guarantees and hedging are structured, approved and priced.