Following the publication of the New Transfer Pricing Guidelines 2022 by the OECD, multinational groups must analyze the characteristics and circumstances of financial transactions according to Chapter X on “Transfer Pricing Aspects of Financial Transactions.”
This analysis must be carried out before verifying whether the transaction complies with the arm’s length principle. These transactions must then be evaluated whether they are intra-group loans, centralized treasury, financial guarantees, insurance, and reinsurance.
In the case of intra-group lending transactions, the OECD establishes the conditions to be considered for the deduction. However, if not taken into consideration in the analysis and supporting documentation, it affects the deductibility of interest expenses and the determination of the tax payable of the multinational group.
Regarding centralized treasury transactions, the OECD indicates that this type of entity commonly performs coordination functions. In this regard, the remuneration of these entities should be compensated as a limited risk entity.
In addition, these New Guidelines indicate how to analyze the use of credit ratings of the entities that are part of the multinational group. The purpose of this is to determine the interest rates of intra-group loans or other financial instruments.
Finally, by including the steps to be followed for the delimitation of financial transactions, the tax authorities can assess the risks that generate the erosion of the tax base of intragroup financial transactions and reclassify it if the facts differ from the agreements entered into or if the parties carry risks different from those posed by the taxpayers.
In this case, it is recommended that Panamanian companies review their financing and treasury policies under the new guidelines and update their supporting documentation.
Source: Martes Financiero 08/02/22