The shutdown of part of the global economy is putting corporate treasuries under massive pressure. Group treasurers provide liquidity to the group together with their external financial partners and group entities located around the world. The tools in place (cash pooling, revolving credit facilities, lines of all types…) are working at full capacity and demonstrate their benefits and resilience.
For several years, the treasury operations have often been framed in the transfer pricing policy. However, in these survival operations, cash requirements increase and exceptional intragroup cash transactions may take place.
In February 2020, the OECD published the result of years of work on group financing: “Transfer Pricing Guidance on Financial Transactions”. It is an extension of the work of the BEPS programme on interest deductibility (action 4) and transfer pricing and documentation issues (actions 8-10).
Let us urge our treasury colleagues to keep in mind that the intragroup transactions of 2020 may one day (in 2/3 years) be audited by tax administrations in the light of the OECD guidance, including the guidance published in February 2020. This audit will take place at a time when the immensity of the 2020 economic and health catastrophe may (hopefully) no longer be critical.
Here are some tips we give to treasurers to help them avoid falling into funding transfer pricing traps. We would expect that most of these tips are already applied, so we have prepared brief reminders:
Charles Lienard and David Abrehart
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The health crisis linked to the coronavirus epidemic has plunged all countries worldwide into the unknown. Paralyzing a large portion of the population and of companies, the health crisis subsequently gives way to a major economic crisis. Against this backdrop, companies first focused on liquidity. Indeed, with a sudden drop in sales, the cash flow generation slows down or even stops as companies are unable to slow down their cash outflows.
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