TPG2022 Chapter X paragraph 10.171

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Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter X: Transfer Pricing Aspects of Financial Transactions | Tag: , , , , , ,
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In considering whether controlled and uncontrolled transactions are comparable, regard should be had to all the factors which may affect the guarantee fee including: the risk profile of the borrower, terms and conditions of the guarantee, term and conditions of the underlying loan (amount, currency, maturity, seniority etc.), credit rating differential between guarantor and guaranteed party, market conditions, etc. When available, uncontrolled guarantees are the most reliable comparable to determine arm’s length guarantee fees.

Related Guidelines

TPG2022 Chapter X paragraph 10.165 A similar issue arises in respect of cross-guarantees, where two or more entities in an MNE group guarantee each other’s obligations. From the lender’s perspective, it has access to the assets of every cross-guaranteeing entity in the event of a default by a guaranteed borrower. This potentially gives the lender...
TPG2022 Chapter X paragraph 10.167 A lender would benefit from the stronger credit rating of the guarantor (compared to the borrower’s credit rating) and/or the guarantor’s asset pool (in addition to the borrower’s asset pool), and the borrower accordingly may expect a benefit in the form of a lower interest rate. Thus, based on facts...
TPG2022 Chapter X paragraph 10.161 Where the effect of a guarantee is to permit a borrower to borrow a greater amount of debt than it could in the absence of the guarantee, the guarantee is not simply supporting the credit rating of the borrower but could be acting both to increase the borrowing capacity and...
TPG2022 Chapter X paragraph 10.182 The capital support method may be suitable where the difference between the guarantor’s and borrower’s risk profiles could be addressed by introducing more capital to the borrower’s balance sheet. It would be first necessary to determine the credit rating for the borrower without the guarantee (but with implicit support) and...
TPG2022 Chapter X paragraph 10.155 In general, a financial guarantee provides for the guarantor to meet specified financial obligations in the event of a failure to do so by the guaranteed party. There are various terms in use for different types of credit support from one member of an MNE group to another. At one...
TPG2022 Chapter X paragraph 10.158 From the perspective of a lender, the consequence of one or more explicit guarantees is that the guarantor(s) are legally committed; the lender’s risk would be expected to be reduced by having access to the assets of the guarantor(s) in the event of the borrower’s default. Effectively, this may mean...
TPG2022 Chapter X paragraph 10.164 A borrower would not generally be prepared to pay for a guarantee if it did not expect to obtain an appropriate benefit in return. Even an explicit guarantee will not necessarily confer a benefit on the borrower; for example, banking covenants applicable to a parent or other MNE group member’s...
TPG2022 Chapter X paragraph 10.159 Where the effect of an intra-group guarantee as accurately delineated is to reduce the cost of debt-funding for the borrower, it might be prepared to pay for that guarantee, provided it was in no worse a position overall. In considering the borrower’s overall financial position as a result of the...
TPG2022 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...
TPG2022 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...