Consequently, even when the interest rate used on the financial institution loan could be comparable, potentially it nonetheless needs comparability modifications. As recommended within the OECD Transfer Pricing recommendations comparability modifications are needed since they вЂњincrease the dependability regarding the outcomes.
The alterations that require become done should account for the undeniable fact that:
- Intra-group debts aren’t senior and so are subordinated towards the financial loan;
- Intra-group debts do not have pledge or guarantees;
- Intra-group debtsвЂ™ maturity is much much much longer when compared to bank financial obligation.
A premium or margin is added to the bank loan interest rate to account for the difference in priority, maturity and/or security.
The financial court ruled that the recognition of a loan relationship between affiliated companies does not require collateral to be provided by the related borrowing company in the German decision.
Interestingly, the court included that neither the possible lack of security nor the subordinated nature of SHLs can justify a danger premium whenever doing rate of interest benchmarking analyses. For the court, in the event that purchase value corresponds to your real value of the true property assets, in case there is standard, the third-party bank struggles to withdraw the amount of the collateral. The extra quantity between the most the financial institution can redraw regarding the security therefore the security takes its safety regarding the SHL. Consequently, the attention price regarding the SHL is capped during the standard of the financial institution loan without possible modification.