TPcases

Database of Transfer Pricing Case Laws

TPG2022 Chapter X paragraph 10.153

Posted on January 20, 2022 | By OECD

Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter X: Transfer Pricing Aspects of Financial Transactions | Tag: Commercial rationality, Deliberate concerted actions, Financial transactions, Hedging, Hedging positions not matched, Migration of risk, Off-setting hedging contract, Other party, Treasury functions

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More difficult transfer pricing issues may arise, however, if the contract instrument is entered into by the treasury entity or another MNE group entity, with the result that the positions are not matched within the same entity, although the MNE group position is protected. Where off-setting hedging contract instruments exist within the MNE group but not within the same entity, or where contract instruments do not exist within the MNE group but the MNE group position is protected (as may be the case with a natural hedge, for example), it would be inappropriate to match the hedges within the same entity or recognise hedging transactions where written contracts do not exist without a comprehensive analysis of the accurate delineation of the actual transactions under Section D.1 of Chapter I (for example, the existence of a deliberate concerted action to engage in a hedge of a specific risk) and the commercial rationality of the transactions under Section D.2 of Chapter I.

Related Guidelines

TPG2022 Chapter X paragraph 10.152Where the centralised treasury function arranges a hedging contract that the operating entity enters into, that centralised function can be seen as providing a service to the operating entity, for which it should receive compensation on arm’s length terms....

TPG2022 Chapter X paragraph 10.151Possible mechanisms by which an MNE group may centralise the hedging of risk include: delegation of responsibility for hedging to an MNE group treasury entity, with the hedging contracts arranged for and in the name of the relevant operating companies; delegation of responsibility for hedging to an MNE group treasury...

TPG2022 Chapter X paragraph 10.150Often an MNE group will centralise treasury functions and implement risk mitigation strategies relating to interest rate and currency risks in order to improve efficiency and effectiveness with the result that individual entities may not contractually enter into hedging arrangements although their risk is hedged from the perspective of the...

TPG2022 Chapter X paragraph 10.149Intra-group financial transactions may include instruments by which risk is transferred within the MNE group. For example, hedging arrangements are frequently used, in the ordinary course of business, as a means of mitigating exposure to risks such as foreign exchange or commodity price movements. An independent entity may decide to...

TPG2022 Chapter X paragraph 10.194Another possible reason for the use of a captive insurance by an MNE group in addition to those listed is the difficulty or impossibility of getting insurance coverage for certain risks. Where such risks are insured by a captive insurance this may raise questions as to whether an arm’s length...

TPG2022 Chapter X paragraph 10.188The accurate delineation of the actual transaction indicates that the enhancement of Company D’s credit standing from A to AAA is attributable to a deliberate concerted group action, i.e. the guarantee provided by Company M. Company D would be expected to be willing to pay an arm’s length guarantee fee...

TPG2022 Chapter X paragraph 10.187Consider the same fact pattern as described in Example 1, but in this case assume that under the guidance in Section D.2, comparable uncontrolled transactions can be identified showing that the arm’s length price of a comparable guarantee would be in the range of 1% to 1.5%....

TPG2022 Chapter X paragraph 10.120As indicated in paragraph 1.179, the determination of the results that arise from deliberate concerted group actions must be established through a thorough functional analysis. Accordingly, in the context of cash pooling arrangements, it is necessary to determine (i) the nature of the advantage or disadvantage, (ii) the amount of...

TPG2022 Chapter X paragraph 10.119In delineating the cash pool transactions, it may be that the savings and efficiencies achieved are determined to arise as a result of group synergies created through deliberate concerted action (as discussed in Section D.8 of Chapter I)....

TPG2022 Chapter X paragraph 10.7Where it is considered that the arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner in comparable circumstances, the guidance at Section D.2 of Chapter I may also be relevant....

Supplemental Guidance

Norway vs Hess Norge AS, May 2017, Gulating lagmannsretA Norwegian subsidiary of Hess Oil refinanced an intra-group USD loan two years before maturity, replacing it with a higher-interest NOK facility. The Norwegian tax authority disallowed excess interest deductions under section 13-1 of the Tax Act, increasing taxable income by NOK 262 million for 2009–2011. The Gulating Court of...

Norway vs Telecomputing, June 2010, Supreme Court case nr. HR-2010-1072-AA Norwegian company classified capital transfers to its US subsidiary as loans, but the tax authority sought to reclassify them as equity contributions. The Norwegian Supreme Court ruled in favour of Telecomputing AS in 2010, finding that the loan classification had an independent commercial rationale and that Section 13-1 of...

Spain vs SGL Carbon Holding, April 2019, Audiencia Nacional, Case No ES:AN:2019:1885A Spanish subsidiary claimed interest deductions on an intra-group loan used to acquire shares in group companies. The Spanish tax authorities denied the deductions, finding the transaction lacked any genuine business rationale and constituted fraud of law designed solely to avoid taxation. The Audiencia Nacional upheld the authorities' position in...

Spain vs SGL Carbon Holding, September 2021, Tribunal Supremo, Case No 1151/2021 ECLI:EN:TS:2021:3572A Spanish subsidiary used an intra-group loan from its parent to acquire shares in related group companies and claimed interest deductions. The Spanish tax authorities disallowed the deductions, finding no business rationale beyond tax avoidance. The Court of Appeal upheld that finding. In September 2021, Spain's Supreme Court dismissed SGL...

Netherlands vs “X Beheer B.V”, May 2008, (Hoge Raad) Dutch Supreme Court, Case no. 43849, VN 2008/23.14A Dutch holding company, X Beheer B.V., extended a loan to G Holding B.V. to finance purchases of depositary receipts in itself and a related entity. When the borrower could not repay, X Beheer B.V. sought to deduct the write-off. The Dutch Supreme Court upheld the tax authority's position in...

Poland vs “W.W.P.H. sp. z o. o”, January 2024, Administrative Court, Case No I SA/Bd 614/23A Polish company was denied deductions for intra-group loan interest and management fees following a tax authority audit, which deemed the loan economically irrational and the services unsubstantiated. The Administrative Court ruled in favour of the taxpayer in January 2024, finding that Polish arm's length rules provided no legal basis...

Spain vs “XZ SA”, March 2022, TEAC, Case No Rec. 4377-2018A Spanish parent company participating in a multinational group cash pooling arrangement applied asymmetric interest rates to credit and debit transactions. The Spanish tax authority assessed that rates should be aligned using a group credit rating. The TEAC dismissed the taxpayer's complaint in March 2022, confirming that credit and debit...

Spain vs Bunge Iberica SA, July 2025, Supreme Court, Case No SAN 3721/2025 – ECLI:ES:TS:2025:3721Bunge Iberica SA participated in its group's cash pooling arrangement as both borrower and fund provider. Spanish tax authorities adjusted deposit and withdrawal interest rates symmetrically using a group credit rating. After rejections by the Tax Court in 2019 and the National Court in 2023, Spain's Supreme Court dismissed Bunge...