Tag: Group rating

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

TPG2020 Chapter X paragraph 10.82

Where this is the case, the credit rating of the MNE group may also be used for the purpose of pricing the accurately delineated loan where the facts so indicate, particularly in situations such as where the MNE is important to the group as described in paragraphs 10.78 and 10.79 and where the MNE’s indicators of creditworthiness do not differ significantly from those of the group. An MNE group credit rating is unaffected by controlled transactions and reflects the actual basis on which the group seeks external funding from independent lenders. In situations where an MNE group does not have an external credit rating, consideration may be given to conducting the credit rating analysis at the MNE group level for assessing the controlled transaction. In all cases, the MNE group credit rating, like any other credit rating, will be appropriate only if it is determined to be the most reliable indicator of the MNE credit rating in light of all ... Continue to full case

TPG2020 Chapter X paragraph 10.81

It is also important to note that although there are established approaches to estimate a credit rating for a particular group member or debt issuance, the considerations detailed above mean that a pricing approach based on the separate entity credit ratings that are derived from publicly available financial tools (see paragraph 10.72), the implicit support analysis, the difficulties of accounting for controlled transactions reliably and the presence of information asymmetry may pose challenges that, if not resolved, may result in outcomes that are not reliable ... Continue to full case
New Zealand introduces Group Rating Approach for certain Cross-Border relatet party Borrowing and Debt Arrangements

New Zealand introduces Group Rating Approach for certain Cross-Border relatet party Borrowing and Debt Arrangements

The OECD’s final report on interest limitation rules notes that thin capitalisation rules are vulnerable to loans with excessive interest rates and many transfer pricing practicioneres finds that transfer pricing may not the most effective way to prevent profit-shifting using high-priced related party debt. Related-party transactions are fundamentally different to third-party transactions. Factors that increase the riskiness of a loan between unrelated-parties (such as whether the debt can be converted into shares or the total indebtedness of the borrower) are less relevant in a related-party context. In New Zealand new rules on pricing of cross-border borrowing and debt has been implemented according to which interest deductions can be restricted. Questions asked under the new rules: Draft guidance on these rules was issued by the New Zealands Inland Revenue in August 2018. New Zealand 2018-sr-beps-interest-limitation ... Continue to full case
France vs General Electric France, June 2017, Conseil d État, Case No 392543

France vs General Electric France, June 2017, Conseil d État, Case No 392543

The Supreme Administrative Court laid down the factors to be applied in determining the abnormal nature of the remuneration of intragroup loans. “The normal or abnormal nature of the remuneration of loans taken by an enterprise from another enterprise to which it is affiliated must be assessed in relation to the remuneration that the lender should pay to a financial institution or similar body to which the enterprise is not related and would borrow, under similar conditions, sums of an equivalent amount. A lender’s assessment of the default risk of the borrower, whose risk premium is the consideration, depends on the debtor’s ability to repay the debt to the obligee until maturity. The assessment of the solvency risk of the borrower, in particular summarized in the periodic ratings that the rating agencies attribute to the companies that may, where appropriate, solicit them to this effect, results from the analysis of the evolutions of a series. economic variables, both internal and ... Continue to full case