Pricing under each model will be sensitive to the assumptions made in the modelling process. Whatever valuation model is used, the evaluation of cost method sets a minimum fee for the guarantee (the minimum amount that the provider of the guarantee will be willing to accept) and does not of itself necessarily reflect the outcome of a bargain made at arm’s length. The arm’s length amount should be derived from a consideration of the perspectives (taking into account options realistically available) of the borrower and guarantor.
TPG2020 Chapter X paragraph 10.180
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By OECD
Category: OECD Transfer Pricing Guidelines (2017) | Tag: Cost approach, Financial guarantee, Financial transactions, Pricing guarantees, Treasury functions
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