With the Silicon Valley Bank (“SVB”) all over the financial news, in the below, we briefly summarize the case and provide you the key take-aways from a transfer pricing perspective on internal banks of multinational groups.

On 9 January 2023, the International Accounting Standard Board (IASB) published Exposure Draft ED/2023/01 which contains important proposed amendments to IAS 12, the International Accounting Standard dealing with accounting for Income Taxes under IFRS. Any party interested may comment on this Exposure Draft by 10 March 2023.

Behold, the era of free money is no more. This might be hard to digest for governments, companies and investors alike. After an extensive period of record-low interest rates and the pandemic fading out in 2022, while economies worldwide are struggling to find their feet with supply chain issues, the war in Ukraine as well as with the comeback of inflation, the current rise of interest rates has several consequences. Further in this document, the impact of rising interest rates on valuations and transfer pricing is discussed in more detail. A key message is that it is better to take appropriate action instead of waiting on the sidelines.

Is inflation back for good? A seemingly simple question, but apparently much harder to answer by politicians and central bankers alike. While the Fed is nervously trying to tame the inflation monster by increasing the key interest rates, the European Central Bank (“ECB”) initially was quite reluctant to do so (as its main concern was rather the national governments’ debt levels) and the false believe that the inflation hike was just a temporary issue. At first, the ECB commented that inflation was only fired up due to the higher energy prices as a reaction to the war in Ukraine. Now that the predicted inflation peak every month keeps on shifting to the next month, inflation looks much more persistent than initially anticipated (by ECB) with the latest Belgian inflation rates as per September 2022 well above 10%. According to the data below provided by the OECD, other countries are faced with similar percentages:

In recent times, a cocktail of ample, free money and limited to no return on the fixed income markets, drove investors in search for yield towards private equity. These private equity funds typically have a lifespan of around 10 years. While, again in recent times, sales of portfolio companies was not a big issue considering valuations went up, taking into account the following:

The OECD Forum on Tax Administration has published on 28 September 2022 a manual on Bilateral Advance Pricing Arrangements, namely the Bilateral Advance Pricing Arrangement Manual (“BAPAM” or “Manual”). This BAPAM is part of the tax certainty work programme of the Forum on Tax Administration with as key focus “to guide tax administrations and taxpayers for streamlining the bilateral APA process through increased transparency and collaboration between competent authorities and taxpayers, and mitigating delays created by differences in individual jurisdiction’s BAPA processes”.

On 12 April 2022, the OECD and the Brazilian tax authority (Brazil's Receita Federal (‘RFB’)) met in view of a proposed new transfer pricing system, which would be more aligned with the OECD Transfer Pricing Guidelines (‘OECD TPG’). As current Brazilian transfer pricing rules contain important differences with the OECD TPG, such alignment would be interesting for multinational companies having a tax presence in Brazil, as such differences may result in tax uncertainty/increased risks during transfer pricing audits, inconsistencies in transfer pricing policies throughout the group and a higher administrative burden.

In order to tackle a visit from the tax authorities on transfer pricing in an informed manner, the transfer pricing specialists of Tiberghien economics and the litigation team of Tiberghien are happy to share their knowledge and experiences.

The Transfer Pricing documentation landscape is continuously evolving, whereby recently, there has been an increasing tendency of various countries updating and strengthening their transfer pricing documentation requirements. Considering these changes, it is important for internationally active groups to follow up on this fast-moving landscape and to make sure that no crucial deadline is missed.

On February 15^th, the Belgian accounting standards boards (Comissie voor Boekhoudkundige normen – hereafter “CBN”) published additional guidance with respect to mergers and demergers of companies having negative net asset values. We note that advices approved and published by the CBN merely contain guidance and is not legally binding.