INTM503200 - Cash pooling: risk assessment/compliance checks

In order to understand the cash pooling arrangement of a particular customer, the CCM or caseworker should identify whether there is a cash pool, what the role of the UK entities are within the cash pool (depositor, borrower, cash pool header, etc.), and how rates are set.

皇冠体育app existence of a cash pool is sometimes disclosed in the statutory accounts of the UK companies.

When reviewing the statutory accounts of a depositor, particular attention should be paid to the following:

  • 皇冠体育app Director鈥檚 Report, regarding the activities of the company and its risks;
  • 皇冠体育app note on 鈥淚nterest Receivable and Similar Income鈥�;
  • 皇冠体育app 鈥淎mounts owed by fellow group undertakings鈥� under the 鈥淒ebtors鈥� note;
  • If the company is the cash pool header, consideration of the margin made on its activities.

If the figure for 鈥淎mounts owed by fellow group undertakings鈥� is high for both the current year and the previous year, and the interest receivable is relatively low, there could potentially be a TP risk on long term deposits. However, that alone is not enough to conclude that there is a TP issue on a cash pool arrangement; further information is required. 皇冠体育app OECD Transfer Pricing Guidelines at Paragraph 3.82 sets out what supporting documentation and contemporaneous analysis should have been prepared, depending on the size of the transaction, complexity, etc.

Key information and documents required where the UK is a depositor include:

  • A reconciliation of the intercompany debtor balances which make up the 鈥淎mounts owed by fellow group undertakings鈥�. For each of the balances:
    • 皇冠体育app nature of the deposit (purpose and term);
    • Which legal entity the arrangement is with (overseas or UK), and location of the cash pool header if applicable;
    • 皇冠体育app interest rate received on any balance (if any); and
    • 皇冠体育app extent to which the balance fluctuates during the year.
  • Transfer pricing documentation prepared to support the intercompany transactions relating to the cash pool.
  • 皇冠体育app legal agreements both with the third party bank, and between the cash pool header and the cash pool participant.
  • Even if the cash pool header is not in the UK, consideration of UK members of the pool will still necessitate an understanding of the function of the header.