Financial capacity to assume risk can be defined as access to funding to take on the risk or to lay off the risk, to pay for the risk mitigation functions and to bear the consequences of the risk if the risk materialises. Access to funding by the party assuming the risk takes into account the available assets and the options realistically available to access additional liquidity, if needed, to cover the costs anticipated to arise should the risk materialise. This assessment should be made on the basis that the party assuming the risk is operating as an unrelated party in the same circumstances as the associated enterprise, as accurately delineated under the principles of this section. For example, exploitation of rights in an income-generating asset could open up funding possibilities for that party. Where a party assuming risk receives intra-group funding to meet the funding demands in relation to the risk, the party providing the funding may assume financial risk but does not, merely as a consequence of providing funding, assume the specific risk that gives rise to the need for additional funding. Where the financial capacity to assume a risk is lacking, then the allocation of risk requires further consideration under step 5.
TPG2022 Chapter I paragraph 1.64
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By OECD
Category: OECD Transfer Pricing Guidelines (2022), Options Realistically Available, TPG2022 Chapter I: The arm's length principle | Tag: Access to funding, Analysis of risk, Comparability analysis, Delineation, FAR analysis, Financial capacity, Functional analysis, Funding, Funding without risk, Risk assumption
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