Tag: Cash pool

Cash pooling can be used to manage the multinational group’s cash position on a consolidated basis and concentrate the group’s cash in one place. A cash pool is normally administered by a group company which is to be referred as the cash pool leader.

Finland vs A Oyj, May 2021, Supreme Administrative Court, Case No. KHO:2021:66

Finland vs A Oyj, May 2021, Supreme Administrative Court, Case No. KHO:2021:66

A Oyj was the parent company of the A-group, and responsible for the group’s centralised financial activities. It owned the entire share capital of D Oy and B Oy. D Oy in turn owned the entire share capital of ZAO C, a Russian company. A Oyj had raised funds from outside the group and lent these funds to its Finnish subsidiary B Oy, which in turn had provided a loan to ZAO C. The interest charged by B Oy on the loans to ZAO C was based on the cost of A Oyj’s external financing. The interest rate also included a margin of 0,55 % in tax year 2009, 0,58 % in tax year 2010 and 0,54 % in tax year 2011. The margins had been based on the average margin of A Oyj’s external financing plus 10 %. The Tax Administration had considered that the level of interest to be charged to ZAO C should have been determined taking ... Continue to full case
UK vs GE Capital, April 2021, Court of Appeal, Case No [2020] EWHC 1716

UK vs GE Capital, April 2021, Court of Appeal, Case No [2020] EWHC 1716

In 2005 an agreement was entered between the UK tax authority and GE Capital, whereby GE Capital was able to obtain significant tax benefits by routing billions of dollars through Australia, the UK and the US. HMRC later claimed, that GE Capital had failed to disclose all relevant information to HMRC prior to the agreement and therefore asked the High Court to annul the agreement. The High Court ruled that HMRC could pursue the claim against GE in July 2020. Judgement of the Court of Appeal The Court of Appeal overturned the judgement of the High Court and ruled in favour of GE Capital. UK vs GE 2021 COA 1716 ... Continue to full case
Denmark vs. "H Borrower and Lender A/S", January 2021, Tax Tribunal, Case no SKM2021.33.LSR

Denmark vs. “H Borrower and Lender A/S”, January 2021, Tax Tribunal, Case no SKM2021.33.LSR

“H Borrower and Lender A/S”, a Danish subsidiary in the H Group, had placed deposits at and received loans from a group treasury company, H4, where the interest rate paid on the loans was substantially higher than the interest rate received on the deposits. Due to insufficient transfer pricing documentation, the tax authorities (SKAT) issued a discretionary assessment of taxable income where the interest rate on the loans had been adjusted based on the rate received on the deposits. Decision of the Tax Tribunal The National Tax Tribunal stated that the documentation was deficient to such an extent that it could be equated with a lack of documentation. The tax authorities had therefore been entitled to make a discretionary assessment. The National Tax Tribunal referred, among other things, to the fact that the company’s transfer pricing documentation lacked a basic functional analysis of the group treasury company with which the company had controlled transactions. “The National Tax Tribunal finds that ... Continue to full case
UK vs GE Capital, July 2020, High Court, Case No RL-2018-000005

UK vs GE Capital, July 2020, High Court, Case No RL-2018-000005

GE Capital (GE) have been routing financial transactions (AUS $ 5 billion) related to GE companies in Australia via the UK in order to gain a tax advantage – by “triple dipping” in regards to interest deductions, thus saving billions of dollars in tax in Australia, the UK and the US. Before entering into these transactions, GE obtained clearance from HMRC that UK tax rules were met, in particular new “Anti-Arbitrage Rules” introduced in the UK in 2005, specifically designed to prevent tax avoidance through the exploitation of the tax treatment of ‘hybrid’ entities in different jurisdictions. The clearance was granted by the tax authorities in 2005 based on the understanding that the funds would be used to invest in businesses operating in Australia. In total, GE’s clearance application concerned 107 cross-border loans amounting to debt financing of approximately £21.2 billion. The Australian Transaction was one part of the application. After digging into the financing structure and receiving documents from ... Continue to full case

TPG2020 Chapter X paragraph 10.148

These cross-guarantees and set-off rights are a feature of an arrangement which would not occur between independent parties. Each guarantor is providing a guarantee for all members of the pool but will not have control over membership of the pool, has no control over the quantum of the debt which it is guaranteeing, and may not be able to access information on the parties for whom it is providing a guarantee. With other parties providing guarantees on the same loans, it may not be possible for the guarantor to evaluate its real risk in the event of a default. Thus, the practical result of the cross- guaranteeing arrangement is such that the formal guarantee may represent nothing more than an acknowledgement that it would be detrimental to the interests of the MNE group not to support the performance of the cash pool leader and so, by extension, the borrower. In such circumstances the guaranteed borrower may not be benefitting beyond ... Continue to full case

TPG2020 Chapter X paragraph 10.147

As part of the cash pooling arrangement, cross-guarantees and rights of set-off between participants in the cash pool may be required. This raises the question of whether guarantee fees should be payable. It will always be appropriate to consider the particular facts and circumstances in any situation but there are certain factors which are likely to be common to many cash pools: there will be numerous members of the pool, there may be both entities with debit positions and entities with credit positions in the pool, each pool member may have a different stand-alone credit rating, and the pooling agreement with the bank is likely to require full cross-guarantees and rights of set-off between all pool participants ... Continue to full case

TPG2020 Chapter X paragraph 10.146

It is expected that all cash pool participants will be better off than in the absence of the cash pool arrangement. Under prevailing facts and circumstances that could imply, for instance, that all cash pool participants would benefit from enhanced interest rates applicable to debit and credit position within the cash pooling arrangement compared to the rates that they would expect to obtain from borrowing or depositing cash outside of the pool. However, it is important to note that cash pool members might be willing to participate in cash pool arrangements to access benefits from the membership of the cash pool other than an enhanced interest rate like, for instance, access to a permanent source of financing; reduced exposure to external banks; or access to liquidity that may not be available otherwise ... Continue to full case

TPG2020 Chapter X paragraph 10.145

Determining the arm’s length interest rates for the cash pool intra-group transactions may be a difficult exercise due to the lack of comparable arrangements between unrelated parties. In this context, banking arrangements involving the cash pool leader, taking into account functional differences between the bank and the cash pool leader, and the options realistically available to the cash pool members may inform the identification of comparable interest rates in the transfer pricing analysis ... Continue to full case

TPG2020 Chapter X paragraph 10.144

Eventually, the remuneration of the cash pool members will depend upon the specific facts and circumstances and the functions, assets and risks of each of the pool members. Therefore, this guidance does not intend to provide a prescriptive approach for allocating the cash pooling benefits to the participating cash pool members in any given situation but rather lays down the principles that should guide that allocation ... Continue to full case

TPG2020 Chapter X paragraph 10.143

The remuneration of the cash pool members will be calculated through the determination of the arm’s length interest rates applicable to the debit and credit positions within the pool. This determination will allocate the synergy benefits arising from the cash pool arrangement amongst the pool members and it will generally be done once the remuneration of the cash pool leader has been calculated ... Continue to full case

TPG2020 Chapter X paragraph 10.142

It should be borne in mind that the other group members which transact with T would still only do so if this left them no worse off than their next best option ... Continue to full case

TPG2020 Chapter X paragraph 10.141

Accordingly, T should be compensated for the functions it performs and the risks it assumes in accordance with the guidance in Section C.1. This may include earning part or all of the spread between the borrowing and lending positions which it adopts ... Continue to full case

TPG2020 Chapter X paragraph 10.140

The analysis under the guidance in Section D.1 of Chapter I indicates that the actual transactions should be accurately delineated as intra-group loans in the context of the treasury activities undertaken by Company T since Company T is performing functions and assuming risks that go beyond the coordination role of a cash pool leader. In particular, the functional analysis shows that Company T controls the financial risks contractually allocated to it and has the financial capacity to bear those risks ... Continue to full case

TPG2020 Chapter X paragraph 10.139

As part of the group liquidity arrangements, T operates an MNE group cash pooling arrangement and is responsible for deciding how to invest surplus funds or fund any shortfall. T sets the intra-group interest rates and is at risk for any differences between the rates it sets with other group members and the rates at which it transacts with the independent lenders. T also bears credit risk, liquidity risk and currency risk for intra-group finance and decides on how or whether to hedge such risks ... Continue to full case

TPG2020 Chapter X paragraph 10.138

Company T, a member of MNE Group Y, performs as the MNE group treasury entity and undertakes a range of different financial transactions both intra-group and externally. Company T’s main purpose is to provide treasury services to the other entities within the MNE group including strategy and management of group liquidity. T is responsible for raising finance across the MNE group by issuing bonds or borrowing from third party banks and arranges intra-group loans to meet the funding needs of other group members as necessary ... Continue to full case

TPG2020 Chapter X paragraph 10.137

A functional analysis shows that M is not subject to credit risk, which remains with the cash pool members, but merely performs a co-ordination function. Furthermore M is not performing the functions or assuming the risks that a bank would. Therefore M would not earn the kind of reward that a bank would earn such as retaining the interest spread between deposits and loans. Accordingly, M would earn a reward commensurate with the service functions it provides to the pool ... Continue to full case

TPG2020 Chapter X paragraph 10.136

As a result of the arrangements in place, M pays less interest to the bank or receives more interest than would have been the case absent the pooling arrangements ... Continue to full case

TPG2020 Chapter X paragraph 10.135

Under the cash management services agreement the bank makes any transfers necessary to meet the target balance for each pool participant with any net surplus deposited by M or any net overdrawn position being met by the bank lending to M. The facility that M may draw on is guaranteed by X. The third- party bank pays interest to, or receives interest from M based on the overall, pooled, position. In this instance, M receives surplus funds from MNE group members H and J and provides funds to MNE group members K and L which have a funding need. Interest on the balances of the pool participants is charged or paid in accordance with the pooling agreements ... Continue to full case

TPG2020 Chapter X paragraph 10.134

M sets up an intra-group cash pooling arrangement with an unrelated bank. Legal arrangements are put in place for all participants which allow transfers to or from M’s cash concentration account to meet a specified target balance for each pool participant ... Continue to full case

TPG2020 Chapter X paragraph 10.133

X is the parent entity of an MNE group which has subsidiaries H, J, K, and L which participate in a physical cash pooling arrangement with fellow subsidiary M acting as cash pool leader. All participants have the same functional currency and that is the only currency in the pool ... Continue to full case
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