All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Germany: Global-China cash pooling and transfer pricing implications



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 (

Tel: +49 69 9585 3551
Yu Tao (

Tel: +49 69 9585 6408



More from across our site

But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
12th annual awards announce winners
Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
Businesses must ensure any alternative benchmark rate is included in their TP studies and approved by tax authorities, as Libor for the US ends in exactly a year.
Tax directors warn that a lack of adequate planning for VAT rule changes could leave businesses exposed to regulatory errors and costly fines.
Tax professionals have urged suppliers of goods from Great Britain to Northern Ireland to pause any plans to restructure their supply chains following the NI Protocol Bill.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree