Standard market interest rates are an important aspect when setting financing conditions between affiliated companies
Standard market interest rates are an important aspect when setting financing conditions between affiliated companies. In order to ensure that international transactions are carried out on fair terms and in accordance with tax law principles, many countries have introduced regulations based on the >> Cross-reference method are based.
In Germany too, the >> BFH the price comparison method as a priority method confirmed. Here are the most important steps that companies should consider when looking for normal market conditions.
- To identify comparable transactions: Consider factors such as transaction type, duration, currency, risk, and geographical location. Information from public sources such as financial reports, industry studies and market databases helps to find relevant comparative data.
- Analysis of comparable interest rates: Once comparable transactions have been identified, interest rates agreed upon by independent third parties in similar situations should be analyzed. It is important to consider the overall context of the transactions and to analyse possible differences between the compared transactions. These differences could exist, for example, in terms of the creditworthiness of the contracting parties, the duration or other contractual conditions.
- Determination of the normal market interest rate: Based on the analysis of comparable interest rates, the usual market interest rate can be determined. This normal market interest rate should then serve as a reference value for setting financing conditions between affiliated companies. It is important to note that the calculated interest rate should be proportionate to the creditworthiness and risk profile of the parties involved and credit spreads should be considered.
- Documentation and compliance: Documenting the entire process of determining normal market interest rates is crucial. Companies should keep clear records of identifying comparable transactions, analyzing interest rates, and justifying the use of the market rate. This documentation is used to ensure compliance with applicable regulations and the traceability of decisions.
Conclusion: Determining normal market interest rates using the third-party comparison method is an important step to ensure that international transactions between affiliated companies are carried out on fair terms. By carefully identifying comparable transactions, analyzing interest rates, and documenting the entire process, companies can meet compliance requirements and minimize the risk of inappropriate transfer pricing.