The rules and practices around transfer pricing are explained in this guide, written jointly be the major treasury associations in Europe. It explains the main international guidance in this area that comes from the OECD (Organisation for Economic Co-operation and Development) and their methods for establishing what is “arm’s length” – namely the “Comparable uncontrolled price method” and the “Comparable price method” and how these can be turned into a practical way of operating for treasury activities across a group.
The European Association of Corporate Treasurers (EACT) has published a guidance note explaining the transfer pricing issues that arise on treasury transactions – loans, guarantees, FX and risk management, and the provision of other services. On cross border transactions the relevant tax authorities will want to make sure the pricing is at arm’s length to avoid the transfer of profit between jurisdictions. In the example of a loan between group companies, were the rate of interest to be artificially low there would in effect be a transfer of profit from the lender to the borrower which would not please the lender’s tax authority.
