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