Transfer Pricing

Transfer Pricing Advisory Services

As a global team of financial transactions specialists, we provide practical, defensible solutions in the context of relevant regulation, guidance and case law.

Our experts have deep experience in analyzing and pricing related-part loans, guarantees and cash pools.

We focus on optimization of capital structures in a tax-efficient manner. Where needed, we partner with tax and treasury departments to build effective pricing models and solutions.

Kroll transfer pricing specialists also partner with corporate finance and valuation experts to provide a breadth of expertise for valuing complex financial instruments using industry-leading methodologies.

Transfer Pricing Challenge

A corporate client wanted to put in place a $1.2 billion five-year floating-rate intercompany loan from its U.S.-based parent company to a subsidiary in the UK. The stated purpose of the loan was to help fund working capital.

The U.S. subsidiary has not been rated by public agencies (e.g., S&P) on a standalone basis.; the group has a public issuer rating of “BBB+.” Potentially relevant issues include the ability of the UK subsidiary to take on the debt, arm’s length interest rate and possible implicit parental support.

Key Outcomes

Kroll conducted a debt capacity analysis of the UK borrower, evaluating various metrics on leverage, interest coverage, etc., as well as cash flow projections.

The “synthetic” standalone credit ratings for the UK subsidiary were determined using Moody’s credit rating tools.

The interest rate was benchmarked using comparable bond data, with reliable conversion to floating rate spreads using interest rate swaps.

Rating agency guidance applied to support conclusion of minimal if any implicit support from the parent company (so that the UK borrower can be evaluated on a standalone basis).