Automated support for internal financing
A digital platform for financial and tax modelling offers an international hygiene and health company stability when extending internal loans.
What was the probleem?
The international hygiene and health company has set up an internal bank in the Netherlands to extend loans to group entities of the company in various countries. According to the tax rules, group entities have to deal with one another in the same way as they would deal with third parties. This means, for instance, that a loan must be coupled with calculations of the credit assessment, financing capacity and the stipulation of an arm’s length interest. How could this organisation optimally implement these complex, financially-driven analyses while keeping sight of the new earnings stripping rules that will be introduced in EU countries as of 1 January 2019?
So what was the solution?
Our transfer pricing specialists provided digital modules for the calculation of the credit assessment, the financing capacity and the impact of the new interest deduction limitation. We presented these analysis tools in the Financial Drawing Board (FDB), PwC’s digital platform for financial and tax modelling. We entered the financial figures and the expectations of the hygiene and health company to arrive at specific calculations for the business. We made this digital tooling part of a broader robust financial policy. As a result, discussions with the tax inspector regarding the arm’s length nature of the loans were minimised, as was the risk of non-deductible interest.
What was the result?
The business can now easily extend internal loans that meet the requirements of the regulator and the expectations of the Tax and Customs Administration. Before a loan is extended, the company can change the principal sum or the conditions and compare envisaged scenarios in FDB. The digital models automatically generate a credit assessment, the financing capacity and the impact of the loan on the financial figures. The hygiene and health company can also see at a glance whether the business is exceeding the interest deduction threshold in the various countries where it operates. This tooling as part of a reasoned policy provides the company with efficient and optimal support for every internal loan.
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