INTM503190 - Cash pooling: netting considerations

One of the relevant considerations is whether balances should be netted off, and if so, at what level. The issue was considered in Bombardier, a Danish tax case regarding a cash pool member (DK: Admin. Tax. Ct., 21 Oct. 2013, Case 12-0189459). That case concluded that interest should be calculated on the net position, if the cash pool participant has both deposits and borrowings in the cash pool. In terms of country netting (e.g. different subsidiaries in the same country having a cash pool locally), unless this is part of the legal/commercial arrangements, there is no perceived obligation on tax authorities to consider separate taxpayers in the same tax jurisdiction on a “net basis”. However, in practical terms, if the overseas subsidiaries were in a parent/subsidiary relationship, on a without prejudice basis, there may be arguments for assessing their respective deposit/borrowing positions on a net basis.

Another consideration would be whether one can net between different currencies – as interest rates can differ significantly depending on the currencies being deposited/borrowed, it may not be appropriate to net the balances of different currencies. Whether or not a group can net currencies will depend on its commercial arrangements with its third party bank. If netting is permitted, clearly this should be respected under the transfer pricing arrangements as well.