The pricing of a financial guarantee must be in accordance with the arm’s length principle. Considering this, it is increasingly important for the tax and treasury teams of multinational enterprises to follow the guidance outlined in the OECD’s publication: Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS: Actions 4, 8-10. This guidance was recently added as Chapter X of the 2022 OECD Transfer Pricing Guidelines.
Luxembourg is a member of the OECD and follows the OECD Transfer Pricing Guidelines. Thus, to minimize the risk of being challenged by tax authorities, tax and treasury teams in Luxembourg-based companies must substantiate their decision-making process for each guarantee in place – even if a fee is not charged.
As a taxpayer, your biggest challenge will be delivering – and then documenting – an approach to assess the arm’s length nature of the financial guarantee. To determine if paying a guarantee fee is appropriate, you should consider the following questions:
Deloitte has helped a broad range of clients to create a process and approach for delineating, pricing and documenting intra-group financial guarantee transactions. These efforts ensure that existing and new investment structures are more robust – so you’re ready for any tax authorities’ transfer pricing audits.
In addition to other services, we:
In 2022, Deloitte conducted a transfer pricing survey within its global network. The feedback revealed interesting perspectives and practices in pricing financial guarantees across 37 jurisdictions.
Find out more about the results by clicking here and read our latest article on Intragroup financial guarantees.
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