Global Transfer Pricing Conference

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Jonah Owen
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1 Global Transfer Pricing Conference Financial transactions the centre of attention October 2016 The new normal full TransParency

2 Today s presenters Jeff Rogers Canada Nick Houseman Australia Krishnan Chandrasekhar US Andy Paton Canada Marc Rasch Luxembourg PwC 2

3 Agenda 1 BEPS and financial transactions 4 Section 385 regulations 2 Status of OECD guidance on pricing financial transactions 5 Practical guidance 3 Substance and value attributed to treasury centres PwC 3

4 In-session Q&A To submit questions electronically, select the current session from the agenda (on the main menu), and tap on Participate and Q&A. PwC 4

5 In-session polling When requested, select the current session from the Agenda (main menu), tap on Participate and Polling. PwC 5

6 BEPS and financial transactions Actions 2, 4, 8-10 and 13 Action 2. Proposals to neutralise the effect of hybrid mismatch arrangements by providing recommendations for changes to domestic law and the OECD Model Tax Convention. Action 4: Proposals to limit base erosion involving interest deductions and other financial payments. Recommended approach is a fixed ratio rule limiting net deductions for interest payments to a percentage of an entity s EBITDA. Proposal also includes a group ratio rule alongside the fixed ratio rule which would allow an entity with net interest expense above a country s fixed ratio rule to deduct interest up to the level of the net interest/ebitda ratio of its worldwide group. PwC 6

7 BEPS and financial transactions Actions 2, 4, 8-10 and 13 Actions 8-10: Aligning transfer pricing outcomes with value creation Action 13: Transfer pricing documentation and country-by-country reporting Increased transfer pricing documentation requirements will require taxpayers to provide details on the role of treasury and potential highlight the value attributed to the treasury function if the treasury function is the only function performed in a country. PwC 7

8 Status of OECD guidance on pricing financial transactions Action 4 noted that In connection with and in support of the foregoing work, transfer pricing guidance will also be developed regarding the pricing of related party financial transactions, including financial and performance guarantees, derivatives (including internal derivatives used in intra-bank dealings), and capital and other insurance arrangements. The work will be co-ordinated with the work on hybrids and CFC rules. Initial meetings occurred in Paris in early PwC 8

9 Substance and value attributed to treasury centres Impact of BEPS actions 8-10 The substance and value attributed to treasury centres will potentially become an increasingly important issue in light of the OECD s proposal to align transfer pricing outcomes with value creation. Important to consider the functions performed by treasury centres with respect to both the creation and management of financial instruments. PwC 9

10 Polling question 1 Since the OECD BEPS papers were published in October 2015 has your group s financial transactions TP policy been revisited by tax? A. No B. Yes, and no further work is planned C. Yes, but we are waiting for specific local country guidance D. Yes, we are actively reviewing the potential impact of the proposals and alternative policies PwC 10

11 Polling question 2 Have non-tax stakeholders become more interested in intercompany financing since the release of the BEPS papers A. No B. Yes, treasury and legal have asked questions C. Yes, it has reached the C-suite D. Yes, both B and D PwC 11

12 The US 385 regs Documentation: Treas. Reg maintains the requirements in the proposed regs requiring (i) enforceable legal documentation, (ii) standard creditor rights, (iii) demonstration of ability to repay, and (iv) ongoing maintenance and controls. Scope: Apply only to debt issued by U.S. corporations. Debts issued by S corps, non-controlled REITs and RICs, and controlled partnerships generally excluded. Factors for debt capacity: Modified weighting of certain factors for the common law determination of whether an instrument constitutes indebtedness or equity. PwC 12

13 The US 385 regs Effective date: Effective date of documentation rules deferred to Jan 1, Documentation must be available as of the date of the tax return filing. Consequence of non compliance: Rebuttable presumption, rather than per se recharacterisation as stock applies in the event of documentation failure. Cash pools: No general exception from the documentation requirements for cash pools, but the exception for debts issued by foreign corporations will, as a practical matter, effectively exempt offshore cash pooling operations of U.S. based multinationals. PwC 13

14 Polling question 3 Have non-tax stakeholders become more interested in the transfer pricing of loans to US entities since the release of the 385 regs? A. No B. Yes, treasury and legal have asked questions C. Yes, it has reached the C-suite D. Yes, both B and D PwC 14

15 Panel Q&A PwC 15

16 Taking action Consider changes to local transfer pricing rules or tax authority practices. Develop a practical and robust global TP policy for financial transactions. Determine the place of treasury in the value chain. Consider the potential impact Action 4 could have on your ETR. PwC 16

17 What did you think? At the end of the session, tap Session Survey and provide your rating on any or all survey questions. Tap submit response. PwC 17

18 Thank you This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details. Design services 30335_PRES_09/16

Global Transfer Pricing Conference

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