HMRC Shares And Asset Valuation Division Withdraws Post Transaction Valuation
REGULATION IN US SHOULD HARMONISE REGARDING INTERCOMPANY FINANCING AND CASH MANAGEMENT BOTH FOR US AND NON US MULTINATIONALS
Intercompany financing and cash management has for some time required our expertise on appropriate interest and or other charges for loans, advances and guarantees in a similar way as we advise on arm’s length charging for intellectual property and intangibles across a group.
Last month’s Section 385 Regulation in US and advice for groups with IRS exposure moves compliance to a new level because determination may considerably be taken out of your hands about whether an instrument is debt or equity. There has been some technical and timing relaxation following considerable lobbying, particularly for US multinational groups rather than non US multinationals. For US tax purposes the authorities will not now divide into two related party debt into debt and equity (issue still open to “study”) however the “all or nothing” determination may deem it just equity (“Recharacterisation Rule”).
While we find that large instrument positions are often well documented, for example in a TP Document Report in master and local files, smaller financing must suffer the same attention. (“Documentation Rule”).
Because of “Indebtedness Factors” increasingly we will be engaged to carry out transfer pricing and like appraisals for both intangibles and financings. Section 385 will have significant impact on our TP workload and should appropriately harmonise with the OECD’s BEP. This arises from tax authorities’ general focus on pricing of transactions between related parties in different jurisdictions and the BEPS initiative, and a realisation of the importance of fair pricing and fair arrangements between related parties generally. This is also especially important for companies and trusts with multiple shareholders and beneficiaries where there are related party issues, for example where there may be an influential or controlling party with conflict of interests. Fair arms-length pricing is important for regulation, to ensure fairness between the parties, and to avoid shareholder prejudice or breach of fiduciary duty law suits.
Our view – an independent view from the financial perspective of appropriate arm’s length arrangements can greatly assist trustees, owners and finance directors of businesses, and provide the necessary governance to satisfy requirements of statute and regulation, cross border as needs be.