HMRC has recently published its guidance on the Transfer Pricing of Cash Pools.
Most multi-national enterprises have a cash pooling arrangement, administered either by a treasury company or a group finance company.
Cash pooling is used to manage the group’s cash position on a consolidated basis. The arrangements aim to maximise the return for the group as a whole on its cash, minimise the cost of funding and control the group’s cash and currency position.
Measuring the overall benefit of a cash pool can be complex due to fluctuating balances, different currencies, and the fact that the amounts deposited by group companies rarely match the amounts borrowed by group companies.
However, from a transfer pricing viewpoint the key question is how that benefit should be allocated between cash pool participants.
Applying the arm’s length principle to cash pool transactions is the same as for any other transfer pricing exercise, so you look at the functions, assets and risks of each of the parties and consider which of the OECD methodologies is the most appropriate.
HMRC’s guidance includes the following chapters:
- Introduction to cash pooling
- Legal and commercial arrangements
- Setting interest rates for participants on an arm’s length basis
- Short term and long term balances held in the cash pool
- UK company as long term depositor in the cash pool
- UK company as long-term borrower in the cash pool
- UK company as the cash pool header
- UK company as the cash pool header and the arm’s length principle
- Netting considerations
- Risk assessment/compliance checks
and can be found here: