The IRS has recently asserted implicit support in several situations where a foreign based affiliate extended an intercompany loan to a US borrowing affiliate. In this piece, we'll discuss an intercompany loan involving Perrigo, and compare the IRS settlement to the litigation involving GE Capital Canada before we turn to another potential IRS issue.
The tax authorities in China and in South Korea have issued different safe harbors with respect to the interest rates on intercompany loans. Safe harbor rates are often in conflict with what would represent an arm’s length rate. Our discussion poses a hypothetical intercompany loan from a South Korean parent corporation to its Chinese manufacturing affiliate to highlight how the arm’s length interest rate depends on the contractual terms of the loans including date, term, and currency and the credit rating of the borrowing affiliate.
The Dutch tax authority prevailed in its challenge of several British American Tobacco intercompany financing transactions.
Harold McClure expounds on the issue of currency denomination in intercompany financing, addressing currency adjustments in longer-term fixed interest rates, past controversies, and regulatory guidance.
In this tutorial, we address comparability adjustments for differences in the currency of the tested loan to that of the comparable transactions.
One of the most challenging transfer pricing issues regarding financial transactions is making a comparability adjustment for differences in country risk between the tested non-US borrower’s country and the comparable US borrower's country in pricing the intercompany loan interest rate.
In this tutorial we introduce you to a tool in the EdgarStat CUFT Loan Agreements Database for estimating the implied credit rating of your tested borrower using the Altman Z”-Score Model.
Intercompany financing is a growing area of focus in transfer pricing. CUFT Analytics co-founder and managing director John Hollas provides guidance on using the EdgarStat CUFT Loan Agreements Database to benchmark an arm's length range of interest rates.
Interests fluctuate based on market conditions, and analysts must consider whether the market conditions surrounding their data are comparable to those of the tested intercompany transaction when benchmarking an arm's length interest rate in transfer pricing.
Harold McClure explores intercompany financing issues through the lens of a recent case before the EU General Court and an upcoming battle between Perrigo and the IRS.
International tax law firms are rightfully warning clients of audit risks with respect to intercompany financing in France. Taxpayers can mitigate risk by following new OECD guidance, providing sound economic analysis and avoiding overly aggressive positions on group vs. standalone credit ratings.