INTM450103 - Transfer pricing records: aggregation of financial transactions
Financial transactions of a similar type may form a category of transactions. If the economically relevant characteristics that determine how a financial transaction should be priced are materially the same, financial transactions may be aggregated into a category of transactions.
Where there are differences in the economically relevant characteristics of a financial transaction that will have a material impact on the pricing, these transactions should not be aggregated.
Applying this in the context of loans, there are a wide range of factors that affect pricing, which can include the following:
- currency
- creditworthiness of the borrower
- fixed or floating interest rate
- long term or short term
- security
- seniority
- terms of drawdown and repayment
- timing of issue
- ancillary features such as conversion rights or rights to redeem early
Whether differences in these factors are sufficiently material to prevent a particular loan from being aggregated with others will depend on the specific facts and circumstances.
However, material categories of controlled transaction should not be so broad that the approach to determining the price of an individual loan cannot be determined from the Local File. Accordingly, where differences between 2 loans affect not merely the price itself, but the approach to determining that price, then those 2 loans should not be aggregated.
Where the economically relevant characteristics within a category, though substantively similar, differ from one another, the Local File should detail that information and the effect on pricing in a pragmatic manner. For example, where the credit rating of each borrower differs and a range of interest rates are therefore charged, it may be appropriate to include details of that range and why the rates applied to the respective loans differs.
This does not alter how the arm’s length principle should be applied to the controlled transactions. Further guidance on pricing financial transactions can be found in Chapter X of the 2022 Transfer Pricing Guidelines.