With respect to real estate financing transactions, tax disputes often revolve around the question whether transactions took place at arm’s length. One challenge might be that an intercompany loan may tax-wise be reclassified as equity. In many countries, this issue is addressed under domestic legislation (through interest deduction limitation/debt/equity requirements/safe harbor rules).
Tax disputes often – in addition – revolve around different views on the actual characteristics of the financing transaction (e.g. term of the loan, underlying security, ranking of the loan, LTV analysis, credit risks). This in conjunction with having different views on how the arm’s length interest rate (or guarantee fee) should actually have been determined. Lacking detailed international (OECD) guidance so far, these discussions often are burdensome and the outcome uncertain. However, on 11 February 2020, the OECD published its Transfer Pricing Guidance on Financial Transactions (TPG FT). The report’s focus is on the accurate delineation and pricing of intercompany financial transactions, such as loan transactions and financial guarantees.
This webinar aims to address at a high level which aspects a Swiss, French, German and Spanish borrowing PropCo in general will need to consider when entering into funding transactions in light of the existent local tax legislation/case law and how they assess the possible impact of the TPG FT on the current practices of the local tax authorities and the position of tax payers.