Germany: Global-China cash pooling and transfer pricing implications
International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Germany: Global-China cash pooling and transfer pricing implications

andresen.jpg

tao.jpg

Ulf Andresen


Yu Tao

The past year saw major movements towards liberalising the currency of the world's second largest economy, the Chinese Yuan or Renminbi (CNY). Such movements include the simplification of cross-border Yuan transaction procedures by the People's Bank of China, guidance for the Shanghai Pilot Free Trade Zone, and the opening up of global CNY offshore centres including Frankfurt. German multinationals, some with huge accumulated CNY cash surpluses in China have had difficulty with cash repatriation. They now have the opportunity to use their surplus cash by connecting their Chinese and global cash pools. Successful pilot cases have been launched both within and outside the Shanghai Pilot Free Trade Zone (entities in this zone enjoy simplified procedures) and now banks are offering cash pool linkage as a product.

Transfer pricing challenges arise from the determination of arm's-length cash-pooling interest rates for CNY, mainly because of the co-existence of onshore and offshore interest and currency exchange systems. The two markets deliver different third-party benchmarks and mixed opportunity costs for the fund providers. On the other hand, fund users are able to borrow alternative free-trade currencies at lower interest rates. Here the rate difference is primarily driven by the evolving outlook of CNY exchange rates. This situation is further complicated by the mismatched expectations of the German and Chinese tax authorities on intercompany financing interest rates, built up from their historical experience. German multinationals that are interested in exploring this cash-pooling mechanism need to consider a number of transfer pricing factors, including the selection of benchmarked markets, identification of opportunity costs, hedging policy and costs, appropriate documentation, as well as the implication of the Chinese thin-capitalisation and German interest limitation rules.

Ulf Andresen (ulf.andresen@de.pwc.com)

Tel: +49 69 9585 3551
Yu Tao (yu.tao@de.pwc.com)

Tel: +49 69 9585 6408

PwC

Website: www.pwc.com

more across site & bottom lb ros

More from across our site

PwC could elect a woman into the senior leadership position for the first time; in other news, KPMG Australia has extended its CEO’s term
The Senate report into PwC’s scandal is titled ‘The cover up worsens the crime’
Law firms that are conscious of their role in society are more likely to win work, according to a survey of over 23,000 in-house professionals
The firm’s tax business generated a quarter of HLB’s overall revenues in 2023
While successful pillar two implementation will require collaboration across all units, a combination of internal and external tax advice is at the centre of the effort
Binance has also been accused of manipulating foreign exchange rates via currency speculation and rate-fixing
Six individuals should have raised questions over information they received but did not breach professional standards, according to the firm
The partnership of KPMG UK has installed Holt for a second term as CEO and senior partner; in other news, a Baker McKenzie partner has sued the IRS
HSBC has settled a claim originally worth £240m relating to a failed film tax relief scheme without admitting liability or wrongdoing
Their prediction comes after the IRS announced it would send compliance letters to large foreign companies emphasising their US tax obligations
Gift this article