Arm’s Length Principle Vs. Implicit Support: What’s The Way Forward?

Understanding the 2022 OECD Transfer Pricing Guidelines and how it applies to guarantees and other financial transactions is essential for multinationals trying to manage intercompany lending and get their transfer pricing right.Granted, these companies have to fund themselves, whether through intercompany debt or guaranteed loans. They have to move money across borders, but how they do that, how the rules apply in different tax jurisdictions, and how everyone gets their appropriate piece of the pie can become very complicated.Profound transfer pricing questions tend to arise when deciding which credit rating applies to a subsidiary of a multinational because that can make a big difference on interest rates and tax implications. Another concern is that if a subsidiary has to get the stand-alone treatment because of the arm's length principle, what is the value of implicit support?Dealing with these issues opens a can of worms that questions the core of transfer pricing as we know it. For one, why should implicit support be a borrower-only analysis when a lender can also be a part of a group? Since implicit support applies to 'important subsidiaries,' are there non-important subsidiaries?The new guidelines attempt to address some of these issues related to the arm's length standard for cross-border transactions between associated enterprises. However, these guidelines don't apply equally across different jurisdictions. For instance, which rules should multinationals that have operations in the U.S consider, and in what scenarios do the new OECD guidelines come into effect? In this episode of The GILTI Conscience podcast, hosts, Skadden Partners David Farhat and Nate Carden, Associate Eman Cuyler, and Clerk Stefane Victor sit down with Abraham (Bram) Isgur, Principal at Keystone Strategy. They discuss transfer pricing for cross-border intercompany loans and guarantees, the OECD guidelines, the controversies to expect and prepare for, ideas for engaging with tax authorities, and more.💡 Featured Guest💡Name: Bram IsgurWhat He Does: Bram is a Principal at Keystone Strategy, an economics consulting firm for Fortune Global 500 companies, top law firms, and government agencies. An economist, Bram advises law firms, multinational companies, and banks on diverse issues, including tax and regulatory compliance, transfer pricing controversy, antitrust, and securities law. Bram’s specialty areas include negotiation of multilateral Advance Pricing Agreements with the IRS and other tax authorities, transfer pricing relating to financial transactions, risk, banking and global dealing, and economic analysis to support Regulation W compliance.Connect: LinkedInConnect with Skadden☑️ Listen to this episode and view the full show notes on our Website.☑️ Join the Conversation on Twitter & LinkedIn.☑️ Subscribe to GILTI Conscience on Apple Podcasts, Spotify, Google Podcasts, or your favorite podcast app.☑️ Let us know what topics you would like to hear about on GILTI Conscience by emailing our executive producer at [email protected] Conscience is a podcast by Skadden, Arps, Slate, Meagher & Flom LLP, and Affiliates. Skadden’s tax team is recognized globally for providing clients with creative and innovative solutions to their most pressing transactional, planning, and controversy challenges. This podcast is provided for educational and informational purposes only and is not intended and should not be construed as legal advice. This podcast is considered advertising under applicable state laws.