Trésorier/Treasurer magazine - N°94 - Juil/Août/Sept 2016 - (Page 16)
Everything has a price
- a transfer price
I find it astonishing that a subject as important as BEPS and the new transfer
pricing rules has not caused much more of a stir in the world of treasury. It is as
if BEPS did not exist. It is, however, essential to review transfer pricing strategies
for treasury transactions to ensure we comply. Whether we like it or not, it is a
reality that treasurers will have to live with, and they will need to adapt to become
a profit centre.
LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE
- JUL /
AUG / SEP 2016
BEPS, the story is only just beginning
Whether we like it or not, BEPS recently became a reality with
the first European Directive adopted by the Commission on
12 April 2016. The rest will soon follow with transposition of
most of the OECD's actions. From a taxes point of view, the
"country by country" report seems to us to be of only minor
interest. Conversely, the impending fiscal measures as a whole,
in combination with each other, will create a real headache
for tax managers. People are talking about a tax paradigm, of
the revolution of the century and of total upheaval. The much
sought-after fairness in tax will come at the price of unending
difficulties. To point the finger at just one difficulty, we could
start with the restriction on deducting interest (see BEPS action
#4). Interest will be deductible only if it is below 30% of EBITDA
(with a de minimis threshold of €1 million). This might create
situations in which entities that are struggling or loss-making
will no longer be able to deduct interest, and will therefore be
even harder hit. We could also cite Exit Taxation, the switchover clause, the General Anti-Abuse Rule, hybrid mismatch (see
BEPS action #2), the revision of the AEOI Directive (mandatory
automatic exchange of information for taxes + disclosures), and
finally and perhaps the worst, the wholesale extension of the
German "CFC" (Controlled Foreign Company) rules (see BEPS
action # 2). This last measure will, right from the outset, generate a whole wodge of demands and attempts to tax anything
that may not have been taxed. Finding out where you stand
and what your taxes are in this can of worms of tax correctives
will be an almost impossible task for tax managers. The aim is
to move from preventing double taxation to rooting out double
non-taxation. The crisis in public finances requires this new
global framework to ensure fairness in tax. Every country is
trying to claim its "fair share" of the tax cake. The main idea of
BEPS is to align the taxable base with value creation. It has three
main watchwords: Consistency, Substance and Transparency.
Against which, you could argue that transfer pricing rules
already existed long before BEPS. It is just a matter of applying
them in the future. Some countries have already started to ask
ever more searching questions to justify the "fair" transfer price.
A major principle of taxation, that of choosing the option that
costs the least in tax, has now been called into question. To
summarise, BEPS will involve very much more complexity, and
will make it essential for operational personnel and tax people
to get together to align and agree on their strategies. Finally,
one of the most important points in our view, BEPS and transfer
pricing will involve much more documentation and a review of
prices charged between subsidiaries.
The 5 key Transfer Pricing (TP) questions
Five key questions need to be asked if treasury management is
handled centrally: what, how, why, where, and who?
1. WHAT types of treasury activity does Group Treasury (GT)
handle centrally and recharge to affiliates?
2. HOW is GT organized to serve its affiliates and how can treasury management add value?
3. WHY are treasury activities handled centrally?
4. WHERE is the GT function located?
5. WHO takes and bears the financial risks?
The last question is crucial: who, ultimately, will end up bearing
the risk. For instance, who bears the loss if the borrower subsidiary goes bust? Who is responsible if the guarantee issued by
central treasury is called? Etc. Based on this question, you can
work out the margins to be applied.
"No more free lunches with TP"
In transfer pricing, one principle comes to the fore: "everything
has its price" (its transfer price). The problem arises when you
try to set this price and to calculate it. Everything has to have
a price, but that price must be "fair". Will the CBS "The price is
right" become the treasurers' television show? This is no game,
sadly, but a reality, BEPS or no BEPS.
This principle also means that loans can no longer be granted
without interest, without documentation and that loans cannot
be waived without due justification, and that finally asymmetrical loans can no longer be granted (for example 100% loans by
one single shareholder, unless again the margin on this can be
justified). The transfer pricing rules must henceforth be applied
more fully and more punctiliously. From the basic principle set
out above, we can derive two sub-principles: "nothing is free
in terms of transfer pricing between two entities of the same
group" (even if they are sister companies). The concept of family
counts for nothing in tax. The second principle is that taking
things to extremes undermines the transfer and is no longer
acceptable. If the group's internal bank issues a guarantee in
favour of a subsidiary, it cannot be issued without charge. But
neither can it be charged at 500 basis points, which would be
Table of Contents for the Digital Edition of Trésorier/Treasurer magazine - N°94 - Juil/Août/Sept 2016
Table of contents
FINANCIAL HIGHLIGHTS Luxembourg Tax News
INTERVIEW Philippe Gelis - Kantox - Fintech and the future of banks
Lost in transformation
Everything has a price – a transfer price
Treasury Survey - an unprecedented picture of treasury activities in Luxembourg
The impact of negative rates on Treasury and Risks Management Systems
Towards reporting harmonisation?
Understanding the Treasury impact of BEPS
Impacts of Single Resolution Mechanism and Bail-in for European Banks
Supply chain? Not concerned?
Collateral management and the Corporate Treasury function.
Efficiently Managing Cross-Border Payments in Turbulent Times
How Mid-Market Companies Can Efficiently Manage Enterprise-wide FX Risk as they Grow
Investing surplus cash in repos
A wind of technology changes in the treasury management world
Invoicing can be fun….?
Comment améliorer la performance des fonds de pension européens
15 MINUTES WITH O2Finance
THE FINANCIAL RISK OBSERVATORY
LIFE BEYOND NUMBERS
Trésorier/Treasurer magazine - N°94 - Juil/Août/Sept 2016