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All things transfer pricing. Uncontrolled Opinions is an open-ended exploration of all things transfer pricing. Silvana and Mikhail, share their views and insights from a practical transfer pricing economists lens.
Welcome to Uncontrolled Opinions. I'm your host, Mikhail, along with my colleague, Silvana. Uncontrolled Opinions is a chat about all things transfer pricing. We're transfer pricing economists by training, so we tend to talk about numbers, but we also explore transfer pricing case law, transfer pricing regulations, as well as practical considerations for being pricing economist. Uncontrolled Opinions is for information and educational purposes only.
Speaker 1:Our opinions are our own and subject to change, and none of this constitutes advice of any kind. Hey, Silvana. How are you?
Speaker 2:Hi, Mikhail. Welcome to Uncontrolled Opinions.
Speaker 1:Great to be back recording. Today, we've got a special guest, Adrian, from Quanterra Global. And we are talking about financial transactions and maybe in particular, Swaps and how we might use it in transfer pricing. Welcome, Adrian, to Uncontrolled Opinions.
Speaker 3:Great to be here. Thank you. And hopefully, I can provide some useful insights to the listeners. Sounds good. Excellent.
Speaker 2:So before we jump to the technical topic, right, I I will like just it's something we normally do with our our guests is is chat a little bit about your transfer pricing background. How do you get transfer pricing? And Adrianne in particular is also specialized in intercompany financing analysis, so we would like to hear your story behind this.
Speaker 3:Yeah. Yeah, sure. I think I started my career in 2000 early twenty fourteen. Yeah. Right from from the university, I joined Container Global.
Speaker 3:I think that the first two years, it was more of a general practice, getting a hold of the transfer pricing aspects in a broad way. So it's not only financial transactions, but also the usual set up, the transaction net margin methods, routine companies, HQ charges, IP royalties, etcetera. And I think in 2016 or end of two thousand fifteen, I decided to to set up together with a colleague the financial transactions practice within Quantiag Global. So, yeah, 2016 was already quite early. And and, yeah, it's not really comparable to today because today, everyone is focusing on it as well.
Speaker 3:But at that time, there were no guidance yet published on this topic, so that that was really great. Nowadays, I also give numerous courses in this field. So for example, for the Dutch Association of Tax Advisors, but also a large tax and law firms here in The Netherlands, and even the Dutch tax authorities. So financial transactions transfer pricing really is my specialty and yeah, I usually say it's really a niche within a niche, right? So transfer pricing
Speaker 1:is already
Speaker 3:a niche within tax, and financial transactions is even further niche within that niche. So that's I think my background and how I came to join the financial transactions practice.
Speaker 1:Excellent. Yeah, it sounds like it's been a pretty interesting nine years in this area.
Speaker 3:Do you want me perhaps to dive into what has happened since then? Is that
Speaker 1:Yeah, I think it would be great. I mean, you know, the OECD guidance has come out. Maybe you can give us a sense of what's changed. Right? I mean, over this nine years when you were starting kind of this nascent practice, what has changed in that timeframe?
Speaker 1:We realize the OECD guidance must have been a big factor there, but what has changed practically on the ground and how you see it?
Speaker 3:Yeah, Yeah. Yeah, So you're correct. A lot has happened since then. I think the fundamentals are still the same. So transfer pricing, you basically look into what third parties would do.
Speaker 3:So would a transaction make sense if there will be no relationship between the the borrower and the lender? So so that's basically the basis of transfer pricing and also dealing at arm's length and also the fundamental of financial transactions transfer pricing. Chapter 10, gives a lot of flavor on it and also some specific items that may have been forgotten in the past. So I think it's not only for for for practitioners, but also for for tax authorities as well to to give them some useful, tools basically to deal with this kind of topics. I'll perhaps later in the podcast, I'll dive a little bit deeper in that aspect and what you should consider when doing a financial transaction analysis.
Speaker 3:But but, yeah, that really gives a little more flavor on that aspect. What we see, I think, in 2019, if I'm correct, the draft chapter 10 was published, which was finalized around 2022 and ultimately implemented. What we see since then is that countries are also implementing it in their local legislation and especially, yeah, financial transaction is something where they would have their specific views on specific topics. So you can have different aspects dealt with differently by each country in Europe, for example. So that's also that that's coming into play way more as so, for example, Netherlands has specific legislation on this topic, Germany, France, etcetera.
Speaker 3:But we also have the more general anti tax avoidance directives in Europe, so that basically tackles hybrid mismatches, implement implementing limitations on interest deductions and things like that. So that's a little bit not really transfer pricing, but it has to do with it. It has some more international tax type of work. And what we see recently, are a lot of court cases in this field. I think, yeah, perhaps ten years ago, most financial transactions court cases were in Australia and The UK because they quite have a quite good, perhaps also in The US, because they have quite good financial transactions practice at the tax authorities.
Speaker 3:But now we we also see it in a lot of other countries as well. So that's really coming into play now. Yes. So that's basically what has changed.
Speaker 1:So it sounds like that, you know, not only the OECD guidance, but there's been a fair bit of implementation at a country level, and we're, over this timeframe, we're also seeing some controversy play out.
Speaker 3:Yeah, definitely.
Speaker 2:Then, as practitioners, and this is for you both, right, I see Adrianne is bringing this European view where there are, you know, more different tax authorities and government and different views of of of the approach intercompany financing and from The US side as well has may have another perspective. As practitioners, what do you think are the main challenge on financing transactions? If there is where are the stacking points and the challenges in supporting and documenting or preparing a planning your analysis in relation to financing transactions? What do you think?
Speaker 3:Yeah, it's a very good question. I think when I started, the main question also for clients was can I get an at arm's length interest rate basically? So they want to know if it's 5%, 8%, 12%, 3%, whatever. But, yeah, what what has changed really looking into the delineation of the transactions, with equity delineation. To be honest, and to be fair, that was already in place before the OCD guidance chapter 10, but, yeah, it was quite often forgotten, right?
Speaker 3:Also by tax authorities and was more about the interest rate, But now it's also specifically looking into would a third party have entered into such a transaction and could the borrowing entity have raised equivalent debt from a third party? So those are basically two important questions you should always ask when performing a financial transaction analysis. So that really has to do with more than just an interest rate. It also has to do with the debt capacity of the borrower, for example. Few other items are added.
Speaker 3:Resact should always make sense from for both parties. So both the borrower and the lender, that's what we call the the two sided approach and the OCD transfer pricing guidelines. And you also have to consider the the options realistically available. So does it make sense to to basically go into enter into this loan transaction while there are better alternative, for example, investment alternatives or what's whatsoever. So you also should analyze that.
Speaker 3:What we also see quite often being challenged is difficult to challenge, but where questions are basically raised by the tax authorities is on the substance and basically place of business discussion. And so it's also mentioned as control over risk function. So the lender should basically able to manage their their functions, their related risks. Yeah. And deal with those risks when they perhaps materialize.
Speaker 3:So that's something to consider as well. Otherwise, you should perhaps consider our approaches in this field. I think after that, you start with the interest rate analysis. So first you consider all those items and then you go into the benchmarking. Yeah, perhaps if it's okay, I'll also briefly dive into that now.
Speaker 3:So you really look into not only the interest rate, but also the terms and conditions. So for example, interest free loans, they do not really make sense anymore. It was used in the past, but yeah, would a third party do so? I don't think so. Covenants, for example, is a little bit more tricky, right?
Speaker 3:So in intercompany contracts, it's not always the case that you have specific covenants in place. But yeah, that's something to consider because third party contracts obviously often see covenants. So that's also an aspect to consider. Yeah. Prepayments options as well and things like that.
Speaker 3:If you have covered those terms and conditions, yeah, then then we can dive into the the more database analysis parts and the the the credit rating analysis, basically. First, they they want you to dive into potential internal comparables. So are there any interest charge within the group that can be used to as a starting point basically for your tested loan as well? So that's also important to consider. To be fair, there are quite some challenges with internal cups as we call it in Europe, But it's something you may consider as well when performing such a database analysis.
Speaker 3:Or actually, have to consider it, but, you know, perhaps reject it or or use it as a specific comparable. After that, yeah, basically go into the external database analysis. So we first start generally start with a credit rating analysis. A lot of tools are available. Then you go into the benchmark study.
Speaker 3:Different options available here. So there are pragmatic approaches such as yield curve analysis, also more elaborate, and database analysis of bond bond and loan transactions, but even more options are available. So, you also have the economic modeling approach, cost of fund approach. There are a lot of options there, I won't bother you with them all today. And obviously, if you have done that, you have to perform comparability adjustments, and that's perhaps also one of the main topics today.
Speaker 2:Yes. So that was one of our And I think all this conversation we are having is towards, you know, getting there and why using Swaps, right? Let's see. Mikay, what what's your what's your view on what what are the challenges?
Speaker 1:Yeah. So, you know, I agree with a lot of what Adrianne has said there. You know, maybe maybe the main thing to add, and I and I think you already said this, Adrianne, you know, when I when I think about what is the main challenge is I think it's one of education. And it's both on the client side and then also the tax authority side, right, that there are you know, whether it's debt capacity, whether it's credit rating, or whether it's the arm's length interest rate, my sense is we are in the capacity building phase still of getting practitioners up to speed on the different tools in the toolbox, so to speak. Right?
Speaker 1:You know, and, Adrianne, you were talking about internal comparables versus external comparables, you know, so the guidance might might put a little preference on internal comparables. But there there's a lot of nuance here, right, in in terms of, okay, so you've got a public company that might have its own listed bonds traded, but then you've got different currencies, different terms, and, of course, credit rating, all of these little things. And so where where in the stack? How how do you take the internal comparables? What weight should you put on the internal comparables versus external comparables?
Speaker 1:Are are they supportive analyses? That sort of thing. So I think the main challenge I see here is, you know, it's it's kind of interesting in my mind. You you know, you compare it to, say, more traditional transfer pricing where you're talking about the T and MMCPM or the cut method or the CUP method. And I think that practitioners have generally a good sense of well, a good sense on how to apply that.
Speaker 1:You know, reasonable minds can disagree. There's plenty of court cases where they spill ink on disagreements in the TNMM. But in general terms, I think the capabilities there and a large number of practitioners have a good sense in how to apply it. I think here, there there is this sort of educational issue where folks are still getting trained on it, both on the, you know, in house side, in the consulting environment, and even within tax authority resources.
Speaker 2:Mikael, is there any, let's say, sort of, like, statement that you you could make on what is, like, a a sound approach for in house teams in terms of interest rates setting? Or we have seen cases where, I don't know, there are loans that are, you know, where the interest rates were not revisited or very long term loans or that aren't mature or things like that. Is there any sort of like, what is a good practice if you were an in house person? Same question for you, Adrianne, the great experience you have with your clients. I mean, what is a good practice internally?
Speaker 2:Not as a consultant, but as an in house, right?
Speaker 1:Maybe I'll give my thoughts here. If you're in an in house role, it's a very practical job. You know, if you've got all you know, one of the practical things we see is as different countries adopt new legislation, we have clients who have old loans that were entered into in in a in a time where maybe not so much thought was put into the accurate delineation of the transaction, the debt capacity, and the arm's length interest rate. And now you've you've got an informational return, and you've got to prepare documentation. I think there, practically speaking, you need to sort of fill the gaps, and you need you you know, you need some Band Aid there.
Speaker 1:And, you know, you you create documentation report as best you can for those historic instruments. I think the best way to capacity build, quite frankly, is on a going forward basis. We now have chapter 10. You need to build it in as part of your process. As you're entering into new intercompany loans, you know, this is not something that the treasury team or if it's in the within the purview of the tax team just does a quick and dirty interest rate analysis.
Speaker 1:You create that cohesive process of accurately delineating the parties to the transaction, the functions, assets and risk, debt capacity, and then also, you know, putting a robust analysis in place of what is the arm's length interest rate. Don't know. What what are your thoughts, Adrian?
Speaker 3:Yeah. Yes. So documentation is is indeed crucial, I think. My my advice would always be to to deal upfront with the with setting at arm's length interest rates. That that makes life quite easier than doing something afterwards.
Speaker 3:Then again, there are options for both. Right? So it's always better to have a benchmark study in place than having nothing in place. And but I I think three topics are key here. So so that's yeah, having your TP report ready, your transfer pricing report.
Speaker 3:So if any questions come in that you basically have documented the choice you have made, the analysis you have done. You should also monitor basically your positions, Had that what's actually agreed in oh, sure. Then I'll basically also go into the third one. You should have an intercompany agreement, and you should have monitoring in place that what is actually agreed in the intercompany agreement that is also being dealt with on a day to day basis. So sometimes there's a mismatch and that's something tax authorities may also use when assessing your your interest rates, but also the transaction as a whole.
Speaker 3:So it's not a question only of of whether the 5% is at arm's length or the 7%, but it could be that the full deducted interest could be denied, basically. So that's also something to consider. So it's really important to have proper documentation in place.
Speaker 2:That sounds great. With all this context, we want to go to a very basic element of this. I don't want us to be super sophisticated just to what what why, you know, why Swaps? What is in very simple terms, Swap? Right?
Speaker 2:And and how it is used in Trump or President? I think that's what what we want to cover today. And I invite you both to to jump in and start.
Speaker 3:Yeah. So basically, definition of a swap is a contract where two parties exchange something. So a cash flow or liability based on specified terms. And they're usually used to hedge against specific risks risks such as interest rate fluctuations or currency risks. In financial transaction transparency, we see a lot of comparability adjustments based on swaps.
Speaker 3:Where, For example, if you have a tested transaction which is a fixed, which has a fixed interest rate, your comparables have floating interest rates. Yeah. You basically have to do something because, a base rate plus 3% spread, and you cannot really compare it with a 6% interest fixed rate. So you have to do something. So that's where a swap comes in.
Speaker 3:So you have the floating fixed swap, for example, where you look into the base rate plus the spread that was applied for the comparable transaction. And yeah, you look at the specific terms and condition of the transaction, also at the issue date of the transaction, and then you swap that on the date of the transaction into what it would have been based on a fixed rate. So that's basically the swapping contract where you swap the floating part with a fixed component, and that makes it the transaction more comparable to the tested loan transaction, because then you basically compare fixed with fixed and apples with apples. The same goes for for cost currency swaps, so where you have a euro denominated loan, that's your tested loan transaction, for example, and your comparables are US dollar transactions. And then you can also use a swap to to account for that difference.
Speaker 3:So it's basically a comparability adjustment within transfer pricing.
Speaker 1:Yep. Yeah. Completely agree with that, Adrian. I would say, you know, in financial transactions, we're very fortunate to have these tools. You know, we talk about making adjustments in the TNMM context, but in financial transactions, when you're benchmarking intercompany loans or guarantee fees or or things of this, it's actually a pretty robust dataset that you've got.
Speaker 1:Right? You've got the loan market, you know, which is one one one dataset, and then you've got the bond market, which is another dataset. But if you think about the bond market, it's it's a very rich pool where you've got daily observations in the secondary market of what is what willing buyers and willing sellers are agreeing to as the arm's length interest rate. Right? You you can look at bonds across credit qualities, right?
Speaker 1:Credit rating is an important driver of interest rates, and you have this rich dataset. And one of the challenges that we have as practitioners is when you go within a multinational company, they have operations in so many jurisdictions, right? And you may have very unique terms Indonesian rupiah variable rate loan. Now if you if you go to a database, you know, it doesn't matter if you're looking at Bloomberg, Cap IQ, or any of this, you're probably not gonna find an extremely rich dataset of Indonesian rupiah variable bonds to benchmark. But the the real value I see with swaps is you can start with some you know, you can start with USD variable rate loans and do a cross currency swap to estimate the the arm's length range of interest rates in Indonesian rupiah.
Speaker 1:Right? And the same goes for fixed to floating, which which I think you were talking about, Adrian, is, you know, the majority of of the bond market is based on fixed interest rate loans. And when you let's say you're in a more liquid currency where where there's more more bonds traded. If you're in British pounds, maybe you have a very rich dataset at the credit quality at the term that you're interested in, of fixed rate loans. Okay.
Speaker 1:But your intercompany instrument is variable rate. You can use these fixed to floating swap rates to make a comparability adjustment to say what is the adjusted arm's length range.
Speaker 2:So and and you bring also a topic here, Miguel, which is the use of bonds market information as not as supposed, but as also a source of, a rich source of data for market interest rates in parallel with loans market, right, with the loan market data. And I think that, and this is for you to let me know, when we're talking about using Swaps, I mean, you can use in loan market information and bonds market information. I mean, you can apply on on the on the yield, in the bonds market data that you get from Bloomberg S and P. How how does it work?
Speaker 1:Yeah. So practically, the comparability adjustment could be applied regardless of your starting dataset. Right? So if you start with loan market data, I think, you know, so so maybe just take a step back. And I'll I'll give you my view, Adriana, I'd be very, very interested in your view.
Speaker 1:You know, practically, if I think about my work in this area, nine out of 10 times we're using bond market data. Why is that? You know, it's a it's a it's a creature of data availability. Right? The the loan market data, you know, you have the SEC, you know, so you have companies who report with the SEC who will attach material contracts and loan market data.
Speaker 1:That's the principal data source for loan market data. There are a couple of others. But, you know, once a loan is entered into, you're not getting updated pricing. So company A enters into a loan in 01/01/2025. That's one price data point.
Speaker 1:Right? You don't have a secondary market. Okay, that 5% interest rate by mid year, given the shift in the credit markets, we don't know how that price changed. We don't have secondary market observations for the loan market data. So if my date of analysis, if I'm trying to determine the interest rate for a tested loan mid year, that January 1 observation is old and cold, Right?
Speaker 1:They've been they've been fed meetings. The interest rates have changed. In the bond market, you have secondary markets. So that same bond that was issued on 01/01/2025 maybe also traded on 06/01/2025. So you you can infer from that secondary market data what is the arm's length interest rate on a different date.
Speaker 1:So practically speaking, I would say most of, you know, nine out of 10 of my analyses tend to start with bond data. What's what's what's your perspective, Adrian?
Speaker 3:Yeah. I think you touched upon a few important items, yes. So data availability is is definitely one. Perhaps a general comment, I think it's important to to to know that you'll never find the perfect comparable in the transfer pricing, and it's not an exact science. So I think that that's important to always consider.
Speaker 3:We do have I don't know. Perhaps let's not go jump to to conclusions, but there will always be difference between test and transactions and the comparables that are used. That will always be the case. And I think that's also why bond data should be accepted. And actually, it's also accepted by the OECD guidance chapter 10.
Speaker 3:I think it's somewhere in the yeah, somewhere included in section nineteen ninety three or somewhere like that. So where you can basically assess a time frame interest rates on alternative financial instruments. So bonds could be one, but also you could also consider other types of transactions. But I think in practice, we usually use are loan transactions and bonds issuances. Loan transactions, you really yeah.
Speaker 3:As mentioned by Mikael, you have less reliable comparables or less available comparables, I should better say. Perhaps the transaction is better comparable than a bond transaction. But I think a bond transaction is the second best option. And because bond transactions have way more data available and also mentioned that's also current, you have the yield to maturity basically available, which is not available for loan transactions. That also makes it very, very interesting for practitioners to use.
Speaker 3:And I agree that ultimately, in the end, see that perhaps 80 or 90 of the loans are benchmarked with bond data. So that that's an important one, I think. Yeah. And there what I wanted to say at the start, there are some tax authorities that do not like the use of bond data. So for example, we've had several discussions with the French tax authorities.
Speaker 3:They, yeah, they explicitly mentioned that they do not like it, and they do not accept it. And there are also several court cases in this field in in France. Basically, on the question, can you compare bonds with loan transactions? And then my my personal opinion is yes, definitely, because in practice, it's it's done everywhere. But yeah, making that steps logical for for, yeah, for example, for for a judge, you have to basically defend your position.
Speaker 3:There are a few items to consider, and that's why I usually always start with loans as well to to look into comparable loan transactions, but then, show a screenshot that there's basically insufficient data that's comparable for this transaction or or less reliable for this transaction. So that's why we've always also analyzed bond data as well. I think that's, yeah, perhaps a twofold approach. Perhaps that's that's a risk in Europe because France has some specific opinions on it, but, that's basically what we, do in practice.
Speaker 1:No. It's an important point, and I can see why a judge might take issue. Right?
Speaker 2:Yeah. Yeah.
Speaker 1:Right. I can because essentially, you know, I mean, the the the point, you know, that we the issue we're we're we're dealing with is is very different to price a $100,000,000 loan versus maybe a couple of units of the bonds that traded on on June 1. Right? And so that that would be perhaps one of the criticisms is, hey. You took these bond observations, but you're pricing a billion dollar loan.
Speaker 3:And
Speaker 1:it really is this data availability issue. Right? And I think, you know, I like I like how you put it, Adrianne, is, you know, ideally, you you kinda show that, hey. There's there, you know, there there there isn't robust data. So we go you go to the next best alternative, which is still a valid observation on credit markets and, you know, things of this nature, which going back to your point, transfer pricing, you know, we we don't find the unicorns usually.
Speaker 1:We don't find the perfect comparables. And so we we are often in the land of the most reasonable comparable given the lack of that perfect comparable. So yes, I do think it's a good way, but you know, as a practical matter, you're, you know, you're you're part of a multinational organization. You routinely enter into lots of intercompany transactions. You you need to find kind of a cost efficient way to benchmark it, You know?
Speaker 1:The both the OECD and The US recognize that the the investigative effort of what is the arms length price should be proportionate to to what's at issue. Right? And so I I I found that bonds are a good good good way to go about it. And, if you've got a multibillion dollar loan, it's strategic to the enterprise. Absolutely.
Speaker 1:It would be great to have multiple data points, bond market, loan market, internal, external comparables who nudge as to what is the right arm's length price.
Speaker 2:I would like to talk I mean, you both mentioned about, you know, the the local perspectives. Right? So so Adrianne just mentioned about about French tax authority not accepting using bond market data. And what about in The US, Mikael? Is there any, you know, experience or pattern that you have seen in practice or discussion tax authority discussion or, like, a general accepted or not accepted?
Speaker 1:Yeah. So I'm not aware of any US specific transfer pricing court cases that discuss, you know, bonds versus loan market or for that matter, acceptance of swap rates. In Canada, there was the there are a couple of cases. There's the GE case, McKesson, where, you know, there there are direct points on this. I'm not aware of that.
Speaker 1:In terms of The US, I mean, The US tax authority is, you know, I I I'd say that you've got pretty well experienced people who who would appreciate the difference between loan market, bond market data. I think the the thing to to kind of take a step back from The US, and Adrianne kind of mentioned this, is that, you know, transfer pricing for financial transaction touches on kind of the international tax or the broader tax framework in a country. Right? And, you know, the practical thing is in The US, you have interest deduction limitation rules. Right?
Speaker 1:And so there's section one sixty three j, which was amended by the recent, one big beautiful bill act that really limits interest deductions to 30% of EBITDA. There's some exceptions, industry exceptions, small size exceptions. You know, the taxpayers we are dealing with are typically larger than the small size exceptions. So, you know, they would be within the purview. You you know, you might be in real estate or or a particular industry that doesn't have, these.
Speaker 1:So practically in The US, you have that other limitation that lives outside of transfer pricing that I suspect, you know, the the outcome that we don't have significant court rulings in this regard is a function of that. And then also in The US, you've got a safe harbor. So under 42 dash two, you have a safe harbor in pricing the, arm's length interest rate using the AFR. And that is an extremely convenient way, at least from a US perspective. You know, the the tax authority on the other side may disagree to to kinda cut to the chase, say, alright.
Speaker 1:I mean, you still you still have the you you know, you still have to prove that this is a valid this is debt, in fact. Right?
Speaker 3:Mhmm.
Speaker 1:But, you know, if you're within within the the purview of the safe harbor and you adopt the AFR rate, it it avoids a lot of lot of work, to be candid.
Speaker 2:Adriene, is there anything you'd like to add to the local perspective, local practice?
Speaker 3:Yeah. Yeah. Perhaps I can give a few examples. In Europe, it's it's There are also countries with safe harbors. In Europe, it goes like yeah, each country has its own rules, basically.
Speaker 3:So and sometimes it really creates difficulties because if one tax authority wants to use the group rating, which is generally preferred by by Germany, and the other tax authority wants to use the standalone rating, perhaps with some notching up based on strategic importance, and then you basically have a mismatch. So you have to deal with it. And I think it's important that that you yeah. As already mentioned, that you document it. But not only on the app, there's also something what Mikael mentioned, the safe harbor.
Speaker 3:If if one country has a safe harbor for the other country, perhaps maybe not so interesting. And they can definitely challenge it because there's no benchmark available to support that interest rate. So safe harbors are, yeah, are also available for specific countries in Europe as well. If I look at The Netherlands, for example, and and also Luxembourg, I'm not sure if you're aware, but we have the the the the, so called intermediary financing companies, so the the flow through companies. This, has decreased significantly, in in the past five years or so, especially in 2022.
Speaker 3:The Dutch tax authorities, made some publications on it. Yeah. Which really creates uncertainty basically for those intermediary financing companies, which, to be honest, from an economic perspective, makes sense because there's no economic rationale basically for such an intermediary financing company. So usually it was used to get certain tax benefits. Obviously, there are sufficient intermediary finance companies that also have some sort of economic rationale.
Speaker 3:For example, we have support our client which was based abroad, so not in Europe, but used a European entity only to get funds in euro basically. So then it makes sense. They do not want to have the risk in that European entity, and they want to have the funds ultimately to that specific country, not in Europe. Then it makes sense also from an economic perspective, a business perspective to use such an structure. But I think in 90% of the cases, yeah, it was on the legacy setup, some tech structures.
Speaker 3:So that's fortunately, that's also that's being reduced a lot. So if I think 90% of those flow through companies do not really exist anymore or exist in in some different manner, as such, or there's actually some substance or it's boosted as more of a treasury center instead of a low risk entity where billions of Euros are flowing through. So that's basically The Netherlands. In The Netherlands, we also have specific legislation and court cases on financial guarantees and things like that. As mentioned, Germany, the group rating preferred approach or actually the external interest rate that a group would have to pay, but that's generally based on the group credit rating.
Speaker 3:That's important to consider as well. France has also mentioned, so they don't like the use of bonds. But yeah, what else do you use?
Speaker 2:And
Speaker 3:then obviously we have, I'm not sure perhaps, also a question from Miguel, but there are also some countries with specific TIN cap regulations. So where you have to have a maximum depth volume of, say, fifth 75% of the total volume. But is it something that's also available in The US, Mikael?
Speaker 1:So I think it's implicit in the one six three j, the interest deductibility, which is 30% of EBITDA. Other than that, no. In terms of debt capacity, where it's like, you know, what is your proportion of debt versus total capital? I'm not aware of anything in particular in that regard. Yeah.
Speaker 1:This was fantastic. Thank you so much, Adrian, for joining us. It's clear you have deep experience in this area. It's an evolving area. It continues to evolve.
Speaker 1:Part of part of the rationale for Uncontrolled Opinions is, you know, is to help spread the word here. And so we thank you so much for joining us and help helping spread the word.
Speaker 3:Thank you for having me on this podcast. Pleasure to be here.
Speaker 2:Thank you, Adrianne. Thank you, Mikael. See you in our next episode. Bye bye.
Speaker 1:Take care.
Speaker 2:Bye. Bye bye.