Treasury and Tax: New Best Friends Forever?

With the recent publication of new guidelines on transfer pricing for financial transactions, two experts examine the impact these will have on multinationals, their treasurers, and tax auditors.

For decades the business case for treasury has included the management of cash as a corporate asset. In-house banks are designed to use cash when it becomes available for funding business activities and thereby, like an external cash management bank, earning interest margin on simultaneous intercompany lending and depositing positions as well as buy-sell spread on intercompany derivatives.

Corporate income tax has always been a consideration when structuring treasury transactions but not so much when considering daily treasury operations. Under the influence of the professionalisation of mark-to market valuations and transfer pricing, as well as the Organisation for Economic Co-operation and Development (OECD) BEPS (Base Erosion and Profit Shifting^[1]) Project, the relationship between tax and treasury has to evolve and become closer than ever before.

In February 2020, the OECD published guidelines on transfer pricing for financial transactions between related parties for the first time. While these guidelines were mostly presented as a compendium of common practices, they incorporated jurisprudence from leading economies and evolving government insights and do not necessary fully reflect existing corporate practices. However, the OECD guidance has now become the reference point for tax authorities and tax auditors globally and has created a new ‘normal’ for companies to comply with, affecting both treasurers and tax directors.

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