Survey of transfer pricing rules for financial transactions in friendly countries

In light of the reorientation of Russia’s trade flows and the prospects for expanding trade and economic relations with friendly countries, primarily Central, South and Southeast Asia, the Caspian region, Transcaucasia, the Persian Gulf, Africa and Latin America, companies are paying particular attention to the financing of new transport and logistics corridors and various supply chain components, including holding and operating entities.

This alert presents key findings from a survey of transfer pricing rules for financial transactions in countries classed as friendly to Russia[1], which multinational enterprises should take into consideration when making decisions about the pricing and conclusion of intra-group financial transactions in order to ensure compliance with local transfer pricing regulations.

The survey focused mainly on countries that are members of the following international communities and organisations as well as other friendly countries:

• The Andean Community
• The African Economic Community (AEC)
• The Eurasian Economic Union (EAEU)
• The BRICS group, comprising Brazil, Russia, India, China and South Africa
• The Shanghai Cooperation Organisation (SCO)

It is worth reiterating that the Government Commission for the Monitoring of Foreign Investments has further extended until 30 June 2023 inclusively permission for Russian residents to grant foreign currency loans to non-residents from friendly countries^[2].

The following key conclusions can be drawn from the survey:

• In most friendly countries transfer pricing rules are based on the principles set out in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the TP Guidelines), but account must be taken of specific local regulations, which have priority.
• When analysing market interest rates, attention must also be paid to the rules regarding the deductibility of interest expenses and thin capitalisation rules.
• Most countries do not have so-called "safe harbour" interest rates.
• Types of limits on the deduction of interest expenses for shareholder loans and related party loans vary, but the most common scenarios are 30% of EBITDA^[3] or no limit at all.
• The most common debt-to-equity ratio for thin capitalisation rules is 3:1.

More detailed information on the transfer pricing rules for specific jurisdictions may be provided on request.

The survey is based solely on our interpretation of the transfer pricing rules in various countries, information available in public sources^[4], our experience and knowledge of international transfer pricing principles and our interpretation of the transfer pricing rules relating to financial transactions.

How can B1 help?

B1 would be happy to assist you in dealing with the following issues relating to intra-group financial transactions to ensure compliance with transfer pricing rules applicable to financial transactions in friendly jurisdictions:

• Analysing current financial arrangements and intra-group transactions involving companies in friendly jurisdictions, identifying and evaluating transfer pricing risks
• Carrying out benchmarking studies of interest rates and fees for controlled financial transactions
• Developing transfer pricing methodologies and policies for financial transactions
• Preparing TP Local Files in friendly jurisdictions
• Carrying out a debt capacity analysis
• Support during TP audits of financial transactions by the tax authorities of friendly countries
• Conclusion of advance pricing agreements with the tax authorities of friendly countries
• Providing TP-related advice and recommendations in relation to new transactions involving companies from friendly jurisdictions