On 11 February 2020, the OECD released the final version of the
transfer pricing guidance on financial transactions – a
long-awaited report after the draft published on 3 July 2018
("Report").
The Report is significant because it is the first time the OECD
issues specific guidance on the transfer pricing aspects of
financial transactions, which should help harmonise interpretations
of the arm's length principle and avoid transfer pricing
disputes and double taxation. The guidance will be included in the
2017 version of the OECD Transfer Pricing Guidelines as a new
Chapter X and an addition to the current Chapter I.
Key takeaways
- What should be treated as
debt for tax purposes: the Report indicates that the
arm's length principle is relevant in determining not only
whether the interest rate provided for in a loan contract is at
arm's length, but also whether a prima facie loan can be
regarded as a loan or should be regarded as a contribution to
equity capital.
