The use of a cash pool is popular among multinational enterprises as a way of achieving more efficient cash management by bringing together, either physically or notionally, the balances on a number of separate bank accounts. Depending on the particular arrangements in place, a cash pool can help to achieve more effective liquidity management, whereby reliance on external borrowing can be reduced or, where there is a cash surplus, an enhanced return may be earned on any aggregated cash balance. Financing costs may also be reduced by eliminating the bank spread embedded in the interest which would be payable or receivable on a number of separate debit or credit account balances and by reducing banking transaction costs.
TPG2022 Chapter X paragraph 10.109
Posted on | By OECD
Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter X: Transfer Pricing Aspects of Financial Transactions | Tag: Cash pool, Financial transactions, Notional cash pooling, Physical cash pooling, Treasury functions
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- TPG2022 Chapter X paragraph 10.146It 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...
- TPG2022 Chapter X paragraph 10.113In a notional cash pool, some of the benefits of combining credit and debit balances of several accounts are achieved without any physical transfer of balances between the participating members’ accounts although the bank will usually require cross-guarantees from pool participants to enable the right to set off between accounts...
- TPG2022 Chapter X paragraph 10.112In a typical physical pooling arrangement, the bank account balances of all the pool members are transferred daily to a single central bank account owned by the cash pool leader. Any account in deficit is brought to a target balance (usually zero) by a transfer from the master account to...
- TPG2022 Chapter X paragraph 10.117The cash pool member is likely to be participating in providing liquidity as part of a broader group strategy, an arrangement in which the member can have a credit or debit position, which may include among its aims a range of benefits that can only be achieved as part of...
- TPG2022 Chapter X paragraph 10.126Liquidity risk in a cash pool arrangement arises from the mismatch between the maturity of the credit and debit balances of the cash pool members. Assuming the liquidity risk associated to a cash pool requires the exercise of control functions beyond the mere offsetting of the credit and debit positions...
- TPG2022 Chapter X paragraph 10.114With no physical transfers of funds, the transactional costs of operating a notional pool are likely to be less than transactional costs of operating a physical pool. Functions carried out by the bank would be accounted for in the charges or interest rate of the bank. With minimal functions carried...
- TPG2022 Chapter X paragraph 10.145Determining 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,...
- TPG2022 Chapter X paragraph 10.147As 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...
- TPG2022 Chapter X paragraph 10.110In the context of this section, cash pooling is the pooling of cash balances as part of a short- term liquidity management arrangement. Cash pool arrangements are complex contracts which may involve controlled and uncontrolled transactions. For instance, one common structure is that the participating members of the MNE group...
- TPG2022 Chapter VI Annex I example 2486. Zhu is a company engaged in software development consulting. In the past Zhu has developed software supporting ATM transactions for client Bank A. In the process of doing so, Zhu created and retained an interest in proprietary copyrighted software code that is potentially suitable for use by other similarly...