In the context of BEPS Actions 8–10, the OECD released a Discussion Draft on financial transactions on 3 July 2018. In their response document, NERA experts Amanda Pletz and Emmanuel Llinares provide comments related to Sections A to D of the Discussion Draft.

Our experts’ opinion is that questions associated with financing arrangements require an approach that effectively delineates the transaction. Such an approach will be based on a detailed value chain analysis, which should start by measuring how value is created and what role financing plays in value creation. The authors believe the relevant “accurate delineation” of transactions should follow from that analysis, not the other way around.

This type of analysis is important to assess the economic benefit derived from the transaction, to understand the commercial and financial relations amongst the parties involved, and to grasp the benefits (if any) achieved through passive association. Therefore, this analysis is the foundation on which any intra-group pricing exercise should be based. Furthermore, the evaluation and pricing of any financial transaction should be rooted in an analysis that is informed from the underlying financial economics.