Transfer Pricing and Financial Transactions

S. 41. General Remarks

1.1. Importance of the issue

Among the classical areas of distribution, selling of goods, and exploitation of intangibles, the number of intra-group financial transactions performed by multinational enterprises (MNEs) has increased in the last decades in both importance and magnitude with no signs of this trend diminishing. For no other reason this theme is being currently focused by companies as a critical area for tax controversy whereby tax administrations have since the implementation of the base erosion profit shifting (BEPS) measures easy access to the financial structure of MNEs throughout either the master file or country-by-country reporting.

The companies’ justification for their focus is quite clear. Financial transactions between related parties may frequently involve substantial amounts of capital that, as such, are volatile so that the taxpayer might easily allocate financial resources to other jurisdictions, which is contrary to the settlement of physical premises. In addition to that, complex situations occur in which the mispricing of the financial functions may arise. Moreover, planning and conducting financial transactions do not necessarily under...