February 18, 2022 / 2 Minute Read
NEW YORK, NY — Keystone Strategy’s Bram Isgur, a Principal and Economist at the firm specializing in Tax and Transfer Pricing, was recently featured as a guest on Skadden’s podcast, GILTI Conscience. In this week’s episode, titled “Arm’s Length Principle vs. Implicit Support: What’s the Way Forward?,” Skadden tax partners Nate Carden and David Farhat talk with Isgur about the transfer pricing implications for intercompany loans and guarantees. “The stakes are huge,” David says. “A lot of clients have to fund themselves. They have to move money across borders, and how governments look at that and how everyone gets their appropriate piece of the pie can become very complicated.”
Key takeaway’s from the episode include:
- Intercompany financing transactions raise transfer pricing controversies. Intercompany loans or financial guarantees are top of mind for multinationals and tax authorities alike. For both cases, the borrowing entity’s creditworthiness is critical. However, controversy begins to arise around which credit rating applies to the borrowing company and the resulting interest rate and how the arm’s length principle should take effect.
- The implicit support dilemma. Are subsidiaries treated equally? What makes a subsidiary important and another non-important? When considered, David raise the point that since some jurisdictions treat separate subsidiaries as separate, as opposed to other jurisdictions that may want to look at the enterprise as a whole and get into the halo effect, how does one get the value from implicit support considering the arm’s length standards?
- How do the controversies around implicit support, explicit guarantees, arm’s length standard affect how a multinational operate, and what does it mean to them? Bram suggests a logic that applies to intercompany loans and guarantees, where the cost has to make sense relative to the savings from the explicit guarantee. For implicit support, the OECD guidelines can point you in the safest direction.
Check out the episode below or on Apple Music, Spotify, or Google Podcasts: