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Arm’s length pricing – and what it means to you

True, it has been shadowed by a certain virus this year. Even so, BEPS has been one of the topics in focus for corporate treasurers this year. On Tuesday, Rohit Sidhwani of PwC’s Stockholm office took part in Treasury 360° Stockholm, presenting the essentials of the OECD’s new financial transactions accounting obligations.

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Your treasury lends money to a foreign subsidiary. How much is that service worth?

What may have been a relatively casual issue historically, is becoming a rigorous challenge – after the OECD issued its guidelines earlier this year for BEPS, the Base Erosion and Profit Shifting framework. A purpose of the rules is to close the door on the possibility to use creative financial transaction pricing as a method of shifting profits to low-tax jurisdictions. Intragroup loans are in focus.

At the treasury, it raises many technical concerns. When a subsidiary borrows from the short-term cash pool, but does so consistently over long time, that should be revisited in hindsight as a long-term loan, for example. Further, the individual credit-worthiness of the subsidiary entity should be weighed into the value calculation. And conversely, when a subsidiary puts in deposit with your treasury, that should not be valued at the interest it generates from your bank, but should be treated as a financing contribution to your group.

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A strict deadline for Swedish implementation has not been set, but Rohit Sidhwani expects to see changes during 2021.

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