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Transfer Pricing Aspects of Cash Pooling
A Closer Look at the OECD Discussion Draft on Financial Transactions
The transfer pricing of cash pooling arrangements has, as case law evidences, attracted considerably more attention in recent years from tax authorities and is getting more and more complex. More jurisdictions are expected to introduce specific guidance, following the impending release of the OECD Discussion Draft on Transfer Pricing of Financial Transactions. As a result, a higher level of scrutiny of such arrangements is anticipated. This article provides an overview of the evolving transfer pricing aspects of cash pooling, highlighting the main relevant and complex issues that need to be addressed.
1. Introduction
Most multinational enterprises (“MNE”) are using cash pooling systems for their cash management and intra-group financing for optimizing their liquidity management. In more technical terms, cash pooling is a special financing instrument that first pools all available cash and other liquid assets within the various entities of a group before external financing is obtained (if required), generally from the bank that is facilitating the cash pool or from the capital market. As such, a cash pool realizes interest savings and reduces the external financing costs of the MNE. I...