Hello, everyone, and welcome to today's webinar about transfer pricing in the context of intercompany financing. My name is Ernest Breitschwerdt. I'm being part of S&P Global Market Intelligence, heading up the European Credit and Risk Solutions product specialist team. The idea for this panel session today was to bring together the joint forces of the professional services world with, Let's say, affected parties, which is the taxpayer, essentially. I'm thereby representing the analytical solutions business, if you will, which is serving not just taxpayers and professional services, but also tax administrations, by the way, so quite opportunistically. I will primarily moderate a very practical discussion around data, analytics, and technology trends, all in the context of tax compliance for intercompany financing transactions. Let me, first of all, start with some housekeeping notes, so we want this to be an interactive session. So please feel free to submit questions throughout the presentation or during the Q&A session at the end. Please also check out the widgets at the bottom of your screen. We want to highlight the related content widget, which is filled with valuable content and thought leadership resources, and the survey widget. Please take the time to fill out our short survey at the end as we value your insights. This webinar also provides closed captioning in English, so please click on the CC icon on the media player just below to activate it. Last but not least, chat with GloWork by clicking on the icon at the bottom of your screen and schedule a private meeting with our product specialists. Before I begin, please note that the activities of S&P Global Market Intelligence are independent and separate from S&P Global Ratings. S&P Global Ratings maintains the separation of analytical and commercial activities. Now we are getting to the fun part. I'm more than pleased to introduce Simone Trappolini, an experienced treasury and FX risk management specialist with a strong background in corporate finance, hedging strategies, and capital markets. Currently, he serves as the treasury manager for FX and DCM at Carrier Corporation, where he manages foreign exchange, interest rate, and liquidity risks. Simone has held key roles at prominent companies such as 3M, LeasePlan, BASF, and Shire PLC, leading FX risk strategies and overseeing treasury operations. There he has also been instrumental in developing funding solutions, for instance, and implementing advanced treasury systems. Simone holds a master's in international management with finance from Trinity College, Dublin, and a degree in economics, finance, and Business Administrations from Sapienza University of Rome. I'm delighted to also introduce Maxime, a very senior transfer pricing specialist, if I may say so, with over 13 years of experience working with international clients in France and Luxembourg, with a particular focus on financial transactions. Maxime has honed his expertise at several Big Four firms in both countries before joining RSM France in September 2021. He's also a valued member of the RSM's European Transfer Pricing Office. His extensive background and insights into transfer pricing will undoubtedly enrich our discussion today. Great having you on the panel, Maxime. While preparing for this webinar, we thought it's the best approach to briefly look back at the past 10 years and discuss the evolution of transfer pricing briefly. We will then quite practically address current challenges while also looking ahead, so what comes next. As we all know, the regulatory landscape surrounding international taxation has undergone significant transformations since the launch of the OECD Base Erosion and Profit Shifting Initiative in 2012. These initiatives aim to combat tax avoidance strategies that exploit gaps and mismatches in tax rules. A notable development in this area is the introduction of Chapter X in 2020, which specifically addresses financial transactions, i.e., the focus which we're also focusing on today. In parallel, there has been a marked increase in global scrutiny from tax administrations, which are now employing more sophisticated audit approaches to essentially ensure compliance with evolving regulations. This enhanced scrutiny is facilitated by improved cross-border information sharing and cooperation among jurisdictions, which allows tax administrations to access and analyze data more effectively. First of all, the implementation of digital reporting requirements marks a significant shift towards increased transparency and accountability in international tax practices. These developments not only highlight, let's say, the growing emphasis on tax compliance, but also underscore the need for businesses to adapt to a more stringent and interconnected global tax environment. This evolving landscape necessitates that companies remain vigilant and proactive in their tax strategies, ensuring they align with the latest regulatory expectations and best practices, while also minimizing risks associated with non-compliance. Yeah, great that we have two practitioners on the panel. I'd like to, first of all, let's say, get the professional services perspective from you, Maxime. When you are looking back at the key shifts in transfer pricing approaches for financial transactions over the last, let's say, 5-10 years, what would you consider to be the top two or three key developments you have envisioned or worked on? Hi, Ernest, and hi, everyone. From a TP perspective, what we observe the most is really an increase of focus from tax administration. In the past, it was a subject that was coming into the tax audit, but not always focused by tax administration. And what we observe now is that there's a systematic check on the financial transactions. And this is quite new. For example, in France, in the past, they were requesting, for example, a formal offer from a bank. And now they are more and more aligned with the OECD guidelines, and they accept a transfer pricing study to document interest rates. So it's a huge trend that we observe globally: more data, more guidelines, and more focus from tax administration. The tax inspector, they're also more trained to analyze the specific financial transactions. It's really a big change from a TP perspective that we observed the last, I would say, the last five years. We can also see that in the case law. With the case law, we always take like 2-3 years. We are always 2-3 years late. We can already see a shift in the tax audit with more focus. They accept the OECD guidelines. We can see that it became a lot more economic-oriented. In the past, we were more on the legal side. Now it's really an economic topic. Generally speaking, the increase of guidelines gives more, of course, more comfort in terms of methodology. On the other hand, it stresses the fact that you need to comply with these specific guidelines to follow. If you deviate from these guidelines, then you have to explain why. And then we also see still some local differences in terms of documentation, in terms of guidelines. So we still have these OECD guidelines, but some countries are more or less advanced in this transfer pricing topic. So it's always good to have local expertise there because the methodology sometimes can vary. In some countries, for example, in Luxembourg, there are specific guidelines for back-to-back loans. You may not observe that in some other countries. So yeah, those are, I would say, the two main evolutions that we see on the market. And also, it's really something important to raise the fact that the tax administration themselves, they are more and more trained to check this topic. So yeah. Yeah, speaking of tax administrations, you just raised it. So Luxembourg, being certainly one of the front runners, let's say, with regards to sophistication, already subscribing to advanced solutions since, I would say, eight, nine years. Do you see, let's say, a trend from other tax administrations also picking up and, in essence, bolstering their approaches? Or are there still, let's say, white spots of tax administrations which just, in essence, rely on what kind of analysis is handed in and then just challenging the taxpayer, if you will, or the auditor? What is your experience? Yeah, so it's interesting that you mentioned Luxembourg because, of course, there are huge fund industries there. So they were quite in advance if you compare to other countries for the financial transactions. It's a country, for example, when you have back-to-back loans, you need also to document your capital requirements there. Not all the countries are doing that. And also, for example, the debt capacity analysis is something quite new that we observe on the market. But yeah, in Luxembourg, it's like almost 10 years, more than 10 years that we focus on margin, on capital requirements, on the interest rates. And if you compare, for example, to France, France came a bit at a later stage. But I will not say that they take inspiration from Luxembourg directly, but I would say that they would more follow the OECD guidelines. I think now for tax administration, it's harder to say that I do not follow the OECD guidelines and I keep my own system. We can still see that there is, for example, safe harbor rules that we may have, for example, in Switzerland, in France, in some other countries, there are safe harbor rates. But still, you can deviate from these rates if you have your specific transfer pricing analysis. So yeah, I would say that Luxembourg is a good example because they cover a lot of financial transactions and also for the asset management, but it's another topic. But yeah, generally speaking, from a methodology perspective, we see that now there are more and more kind of an alignment in terms of methodology between the countries. Yeah. Okay. Thanks, Maxime. Simone, you have also been on the non-financial corporate, let's say, treasury side throughout your career. What are your, let's say, 2-3 key developments which you have seen over the last 5- 10 years in transfer pricing, and especially geared towards intercompany financing? Yeah, so thanks, Ernest. So I agree with Maxime. You could see that 10 years ago, there was less scrutiny by the tax environment, especially in other countries. Now they're really looking to have a proper check on the intercompany loans, both deposits and loans from the side. So here at Carrier, for example, we had a tax authority from Poland asking the agreement for some intercompany loans granted between 2019 and 2020. So they came back asking exactly the way how we calculate the interest, the benchmark usage, the repayment terms, and the purpose. So I would say the focus is quite important at the moment from their side. It's important from a corporate perspective to maintain an accurate record, update the guidelines, keep record of this. In the past, I've been in corporates where the pricing and the guidelines were updated once or twice a year. Now we see moving from quarterly to a monthly base. Here at Carrier, we update our pricing guidelines once a month. We keep a record of this. Obviously, we also want to mention we're using Capital IQ from S&P, and this gives us a quite powerful tool because it gives us the possibility to analyze based on the financial profit rating. Based on that rating, we can price intercompany loans or deposits. In case some tax authority comes back and asks why you allocate a triple B or double B, whatever, it's the rating that we know we have an accurate record from our side. Thanks, Simone, for mentioning also our systems. Even though we didn't pay you for that, it was freedom of speech, obviously, also in this session. Looking at, let's say, present challenges, perhaps I can elaborate a little on what we are seeing from our customer base, and then you can share that with your experience. Because there's obviously one aspect of the delineation analysis, which is quite challenging for our customers, which is that subpart to analyze the debt capacity. We had developed already a solution for it 10 years ago. Quite some time, it was just, let's say, sleeping on our template library, if you will. But over the last 2-3 years, we have seen more and more demand for that kind of delineation sub-analysis. So that is certainly an aspect which is also a present challenge, as it seems, for auditing companies and taxpayers, but also tax administrations alike. Then we have the assessment of the financial transaction itself. So there you have obviously the credit risk scoring, drivers, breakdowns. These are the more, let's say, common themes which have always been a challenge. But lately, there is also more the question, how could I embed, for instance, qualitative factors? How should we embed the parental and government support overlay? Just speaking of parental support, even nowadays, we're seeing the practice from large non-financial corporations that they are just relying, let's say, on the group rating, penalizing their subsidiaries by one or two notches. And they said they have never been challenged. That is still a practice in the market, which, in essence, is, to our opinion, not really in line with the arm's length principle, as the OECD, in essence, is, let's say, formulating it. Then, since the Chapter X release in 2020, there is a, let's say, new emphasis on issue-over-issuer risk assessments. And perhaps, Simone, I will just, in essence, challenge you in a second if you're also essentially analyzing transactions or if you're just essentially, in quotation marks, analyzing the entity itself. Yeah, so we. Go ahead. Yeah, no, we do analyze the entity, absolutely. I would say that analyzing the debt capacity of an entity, it's quite important. We have to seek that the entity is able to repay the loan. So in this way, tax authority can also recognize this transaction as debts and not as an injection of pure equity. Yeah. Another challenge which we are seeing, especially also from tax administrations, is a request for loan data versus bond data. So we at S&P Global Market Intelligence offer, obviously, solutions for both. With the caveat that loan information is even more scarcely available than bond information. But nevertheless, there is that conundrum that many, especially tax administrations, are challenging the users of our systems or also of other, let's say, competitor solutions to actually drill down to the underlying securities, even if it's a, let's say, very exotic currency, a distressed risk assessment, and an industry where you have very few observations. So that is certainly something which we see still as a challenge. And then the third pillar, which I've noted down, is obviously automation requirements. You mentioned it already, Simone, that you are automating, let's say, your spread determinations on a monthly basis, if I'm not completely mistaken. Do you also run all your, let's say, transactions through that system or just a selected one? No, that is correct. So we are now implementing our treasury system. But the idea is, yes, to calculate the spread once a month. We provide credit facility to our entities. These credit facilities are tailored by the entity. So based on the rating and the duration, we allocate them an intercompany spread. So they have the capability to borrow or lend from us, knowing what is going to be the spread to apply based also on the currencies and on the tenor side. Okay. Great. We also thought that it makes sense that the audience is brought into the panel session a little more interactive. So we would like to ask the following, first of all. How often do you perform a debt capacity analysis when documenting the arm's length character of an intra? What Maxime also was referring to and what I am also observing in the market as a request from our customers. Essentially, you have three options to answer: never, always, or it depends on local requirements, and we are eagerly awaiting your answers. So please answer that question now. Okay, so here we go. 60% have answered never, one said always, or 50% is the remaining one. It depends on local requirements. Maxime, I think that is, is it what you would expect, essentially, with regards to the debt capacity analysis? Yeah, if I was a local tax administration, I would be really happy with the results. So it's a good point. So yeah, when we look at the market for the time being, we see that in most of the cases, the debt capacity is not done. But it depends also by the type of clients. It's also a relatively new topic. There are no strict guidelines on how to perform the debt capacity analysis. And of course, it is part of the delineation analysis. It's an interesting part. It's true that when we think about financial transactions, we think about the interest rate, of course. But we should also focus on the debt capacity. We could also focus on the capital requirements depending on local requirements. So that's why I think it's really encouraging, the fact that there's a 52% that we look at local jurisdictions because, of course, there are thin capitalization rules. There are other types of tax rules that may impact the need of debt capacity. The other things that we see, so you have the capital requirements, you have the debt capacity, the interest rates. And we see more and more challenge, for example, on the rationality of the loan itself. So this is something we observe, and it makes the link between the TP, so the general TP, I would say, the commercial TP, transfer pricing, and the financial transaction. What we see is that sometimes when you can have, for example, a local limited risk distributor that will be financed by the group with intra-group loans, we observe the fact that some tax administrations challenge the existence of the loan itself, saying that normally there should not be a loss at this level, so no intra-group loans. Basically, that it was a double penalty for the subsidiary. Yeah, it's a good, I would say it's an encouraging answer. Yeah, I would recommend at least to check the local requirements. Maybe not always perform the debt capacity. If you have the capacity to do it, it's better. But yeah, it's really important to check the local requirements. Yeah. And then you have also essentially asked us to put in another question. Do you use local transfer pricing expertise to document your intra-group loans? So certainly, that's a challenge, especially for you, right, to always find new customers. So let's see what the audience says. So do you use local transfer pricing expertise to document your intra-group loans? I hope that everyone was able to click it. 50/50 split. I hope they will know that we will not have two participants. Yeah, exactly. Exactly. Yeah, I think the system is sometimes a little delayed. But here, is that encouraging for you? Is that what you're also seeing in the market? Or what is your perspective on, in essence, also to a certain extent outsourcing, let's say, the transfer pricing assessment to third-party consultants? Yeah. So in our case, what we observe, we have, let's say, two sides of situation, two types of situations. The client that will anticipate the need of transfer pricing documentation and will ask, "Okay, what would be the interest rate?" So we have those types of requests. The other type of request that we have is the clients that perform themselves the, let's say, the transfer pricing analysis. And then there's a tax audit. And then they request some assistance on our side to justify or to support the loan because you always have your OECD guidelines, which is a good element. And then there's local specificities. Some countries, they will also issue specific guidelines on financial transactions that they will inspire. It will be inspired by the OECD guidelines, but they will change some elements or they will add some requirements. So it's always good to check. But yeah, it depends also on the size of the group. Some groups, they have access to the data. They have access to the expertise. Some others, they don't. So they have to adapt. And then some countries, some clients will centralize the preparation of the transfer pricing documentation in a country and spread it in the network. And some of them will have really a tailor-made approach with local expertise. Yeah, it is something we recommend at an early stage. But yeah, in both cases, either we can review or we can perform the analysis. But it's quite encouraging that in 55% of the cases, there's local expertise. I think it's a good result. I would encourage to have more local expertise because really, it can have a big impact in terms of tax audits. Speaking of challenges, I mean, you have listed a few which obviously your customers have and which you try to resolve. But what are, let's say, the challenges in the environment today for you as a professional services unit? Is it more, let's say, analytically? Is it more that you're exposed to various regulatory environments which don't really add up to each other? What do you see in the market? Yeah. In the past, there were a lot of challenges about the comparables themselves, so as we can do for other types of benchmarking studies. And then tax administration realized that maybe the topic would not be at the comparable side, but maybe more on the credit pricing side. So this is a shift that we observe. Now we have more and more challenges about the use of the tool. For some countries, it was considered in the past, like maybe five years ago, as a black box. So therefore, it was not accepted. Now they are more open-minded. They start to understand the tool, to accept it as well. And we see more and more challenges about the criteria that we put in the system, the granularity that we want to have in the transfer pricing analysis. So because the financial transaction is, I would say, the less subjective topic in terms of transfer pricing, you have clear guidelines from the OECD guidelines. You have a specific credit rating tool, and you have also a list of bonds or loans depending on what you want to document. So there's less subjectivity. And I would say that for tax administration, it's easier to challenge this because it's easy to track. You have access to the data. When you look at the financial statements, it's something that you can easily see. You can easily see either the existence of the loan or you can easily see the non-existence, for example, of a guarantee that is provided by the group, this kind of thing. So I would say that it's easier for the tax administration, but they are more focused on the substance and on the criteria that you use on the credit risk tool. Okay. Simone, do you share, let's say, as a kind of professional services perspective, or do you have different, let's say, challenges as a taxpayer, as one which is essentially affected? From our side, like the import, every time that we grant an intra-company loan, we have some internal guidelines that we have to follow. Obviously, if we have tax audits from different countries, they might require the way how we calculate what kind of spread we use, how we calculate the spread, what is even the formula sometimes they are asking to calculate the interest. If we are able to withstand this and show that these are our internal guidelines and we have followed step by step, then we should be fine. But of course, every time we want to grant financing to one of the entities around the world, there is always to keep in mind their local tax. Sometimes you can even need the interest rates that we are using, like what kind of benchmark is the appropriate one, is the interest rates or the spread too high. If these entities are looking to fund themselves using maybe a local lender, what would be the credit-like spread or the interest that they are going to get? Some other entities or corporates that have been, they have as a policy that every time a company is looking to borrow cash, they have to first get a quote internally because the entities were cash-rich. So decrease the amount of exposure and debts that you have versus third party and use the cash that they have. That could also be another challenge from a tax authority and see why you are borrowing internally when externally it would cost you less. Obviously, it's difficult to prove which is the most efficient way. Okay. And with regards to the most efficient way, you asked us to essentially ask the audience to give their flavor with regards to how frequently do they actually review and update the spread applied to intercompany loans and deposits. So here we have five possible answers: monthly, quarterly, semi-annually, once a year, or ad hoc when needed. So we would appreciate if you would just, in essence, select an answer. And I'm just giving the audience another five to 10 seconds. So let's see what we are getting back. Ad hoc when needed is the main answer, more than 50%, once a year, 26%. You are in the camp of the 4.3% only, Simone. So monthly is a rare circumstance. Is that, let's say, in line with what you also hear from other practitioners in corporations you're dealing with, or what is your first response? I would say it's not that surprising from my side, especially the one I've worked. I've been in five different corporates. Obviously, they have all different internal guidelines. But the one that was updating with less frequency was quarterly. So it's quite surprising to me to see that the guidelines and the spread is updated once a year. Not to me to say which one is the correct way, but what we saw in the past, in my previous experience, is in an environment where interest rates can go up and down quite easily. This is reflected on the cost of funding and ultimately on the spread that you are going to apply to the entities looking to borrow capital. So you might be showing an interest rate too low or too high. If, let's say, the entity is looking to get funds from you at 2% when outside on the street, they are funding themselves with 4% that they will take from you. But at this, sometimes you might also add hedging cost, which ultimately will get into a loss for the entity lending. And here we are with the principle of, is this really arm's length principle? So giving an interest rate below what is the market at the moment. Yeah. Yeah. We certainly also have to consider, let's say, the structure of the audience, right? There might be smaller, let's say, non-financial corporations which only, let's say, update their lending, their revolvers once a year. So therefore, you see these kinds of answers. But what we have also seen in the past, especially from the professional services side of things, is that they are challenged with interest rates which they just have to defend. Maxime, is that something which you have also observed in your customer base, at your approach? Dear Maxime, we have granted a loan two years back, 5%. Please help us in defending it because we are getting challenged. Yeah. And I would say it's the majority of the case for the time being, especially when we have foreign clients. It's especially the case with U.S. clients. They may have a different approach in terms of risk, risk management. To give you a concrete example, we saw, for example, some loans, intra-group loans, that were on paper. So it was on the financial statements of the company, but there were no, for example, no loan agreements, for example. In this case, we were first challenged by the interest rate. So it was a first challenge, but we were able to defend the interest rate because it depends how granular you are with the methodology. This is also a good point with S&P is that you can really tailor-make your analysis to really match the client's situation. But what we see is that even if you defend the interest rate, if you don't have the adequate substance, then they can say, "Okay, you have an arm's length interest rate, but at the end, you don't have a contract. So therefore, I deny the existence of this loan." And therefore, the interest payment that was paid to the U.S. So this is the first scenario. And then the second point was to say, "Okay, you are a limited risk distributor, and you have a huge amount of loss. You should not have this loss, and therefore, you should not have this intra-group loan." And then it made the link with the global TP policy of the group, and it started to become not a mess, but a challenging topic. So this is something we observed. Yeah. Especially, for example, when there's a 12% interest rate, those types of high interest rates. In France, it's quite easy. You have a safe harbor rate. If you go above, you need to document that. But yeah, sometimes, for example, you have local safe harbor rates that are really not that can really hardly be considered as being arm's length because it will not take into consideration the currency. It will not take into consideration the maturity, the industry, all the other factors, the seniority of the loans. So there's a lot of factors they will not take into account, but those are the safe harbor rates. And of course, if you deviate, so basically, if you follow the arm's length principle, you should deviate from this rate. And then they start to document this. So yeah, I would say it's half of the time it's in the case of a tax audit, and we have to document the past, taking also into consideration that if there's already a loss, the tax administration can also challenge the loss. When we talk about financial transactions and interest, the difference between a 7% interest rate and the 2%, for example, safe harbor rate, it can be quite important. Especially if you have $30 million or $100 million loans, the impact can be really, really important. Yeah. Okay. So let's essentially sum up the, let's say, current challenges. We're seeing a trend also on the tax administration side, fortunately, for more, if you will, professionalism, more professional systems, right? But also on the other side, even non-financial corporates are, in essence, equipping themselves to defend better their tax policies, if you will. That is at least a little the sense with which I'm getting out of that discussion, especially comparing it to five, seven, eight years ago. So now let's switch gears again, and let's look a little more into the future. On the following slides, we have put together a few, let's say, buzzwords, like more advanced pricing agreements, more complex transactions being scrutinized by tax administrations in the context of real estate asset financing, for instance. There is a big hub in Luxembourg. Also seeing it here in Germany, that these transactions are getting challenged. In general, as mentioned, we are seeing a much broader application of tools like ours, and that trend will certainly manifest over the next couple of years, hopefully. Simone, perhaps, let's say, speaking in the context of a treasury unit and your organization, how you're conducting it operationally, are you planning more, let's say, automation, more processes around transfer pricing, or are you currently, let's say, if you will, happy with the setup, and it's just a BAU? No, we definitely plan a bit more automation on this using some external tool like Capital IQ, for example. But we are implementing now a new treasury system. We want to benchmark ourselves with other corporates and see what they are doing from their side, see if there is also the possibility going forward to calculate the spread by using other tools that could maybe compare what is the price of a Carrier Corporation when we issue a bond and then replicate that spread into our entities. So I would say that the future is definitely in the automation of this. It would be maybe interesting going forward to have some kind of tools that will help us also to basically by country or tenor, what is the best practice sometimes. So something that could help us to define better what is the current spread or interest rates to apply. Yeah. Okay, and Maxime, perhaps on a, let's say, related note, knowing that in the professional services world, there's less, let's say, the need to automate essentially the assessment of hundreds of transactions at once. As you mentioned, it's more case-by-case instances. But is your company already, for instance, adopting artificial intelligence or other automation systems to, in essence, deal with these kinds of requirements in a more stringent and more efficient way? Is that something which you are planning at RSM, or? Yeah. When we talk about AI, it's always something we can think about a lot of things, but basically, we can also create those types of matrices that are quite useful for clients, for example, when they want to anticipate the interest rate they should apply for future investments. So those are the types of solutions that we can develop. You can call that AI, but at the end, it's just an Excel template that will gather a lot of data, and then you can anticipate what could be the interest rate. And then after the end of the year, basically, you challenge the gap that may exist between the actual data and the data that you anticipate. So this is something we can do. But yeah, the matrix of loans is something that a lot of clients are looking for to anticipate this. It helps also in case of tax audit because you already have something to document. You can always say that it was the best practice at the time of the analysis. Yeah, this is how we use the AI. The AI is more used, for example, for other types of benchmarks that we may also use using S&P, but another type of tool that is used mainly to do a kind of manual screening on the comparable that we don't use that much for financial transactions because basically, the Capital IQ has already captured a lot of data. It's more advanced than what we could create by ourselves. Yeah, it's a mix of AI that you have and practice that we and specific tools that we developed internally at RSM. Okay. Great insights. Perhaps, Simone, you can also share, let's say, general trends which you are seeing in corporate treasury or finance teams. If you can share already anything or what you've been speaking about with other treasurers on the topic of developments. Yeah. So from our side, we obviously have to keep ourselves up to date in terms with the guidelines and whatever the tax authority needs from our side. As Maxime said, it's important to have guidelines which reflect the current environment and keep an accurate record on this. Okay. And perhaps a question to you both before we are coming to the Q&A session. Do you see essentially a trend towards more complex structures being set up, for instance, mezzanine financings, including prepayment options, covenants, if you will? So all these kinds of things which may make especially pricing more complex. Is that something which you're seeing over the last couple of years, or is that not really a trend? So perhaps Maxime, you can start, and then Simone can elaborate a little on it. We see more and more complexity, of course, depending on the case, especially on the debt capacity. For example, if you look at external comparables, most of the comparables, for example, will not use mezzanine lender, for example, in their structure. But it does not mean that from an internal perspective and from a transfer pricing perspective, you cannot reach a higher level of debt-to-equity ratio, for example. So this is the topics that we can work on and to see if we can reach, let's say, the objective of the clients, bearing in mind that some of them, in the past, they were kind of safe harbor rates, maybe market practice with the famous 1.99% or the 15.85% that are more and more challenged. And now there's, let's say, this trend that, let's say, encourages the taxpayer to document this debt-to-equity ratio. And then you need to find a new solution. And also, of course, about the legal agreements themselves, they become more and more complex. If you look, typically, a bank loan, it's not rare that they do a 300 pages or more. And if you compare to intra-group loans, sometimes it's like a two-page. So you can see that there's an area of improvement in terms of legal documentation. But it's a new topic because you can have a lot of conditions in your legal agreements, but then you need to actively follow your agreements. You need to actively follow the market because theoretically, when the facts and circumstances change, you should adapt a bit at least your conditions. So those are the types of elements that we can anticipate. And then, of course, try to price it using swap or any other element that we may have. But yeah, the legal side becomes more and more complex. And yeah, I would say it's more and more important in the case of tax audits. Yeah. Yeah. Interesting, as if you were saying or bringing up the topic of legal documentation, it goes a little into the direction of what we discussed before with regards to defending a specific spread, right, and we tweak the conditions that they fit. I think that is certainly not the right approach, but it's certainly still sometimes practice. Simone, do you also see that on your side, that you even have to work with your lawyers together to create these kinds of intercompany lending contracts, or is that something which you just pull off the shelf and there is a two-pager like Maxime mentioned, which you always apply to all your intercompany lending activities? Yeah. I would say it's, I would say probably it's a 50/50. Now we have a standard process and a standard document. But there are some cases, like obviously in my previous jobs, when you have to maybe create an intercompany funding for sometimes some joint venture, and that could be the case where your internal guidelines cannot be applied because obviously it's at your investor. So there is another party to take into consideration. But before to grant funding with intercompany loans, as Maxime said, it's important to get a debt capacity analysis because first of all, you have to prove that the entity is able to repay the loan. Someone might say it's right pocket and then left pocket, but I guess if the left pocket has a hole, that money gets lost. So if it's not able to repay in the end, it's not really right pocket, left pocket. Sometimes we also see that based on the structure of the entity or the business, we sometimes corporates use a standard template with a classic repayment of interest and principal and a notional bullet. So at the end, but some entity might require because of their business something like an amortization or a relief of the interest after six months. And that's where you really go into a lot and specific loan. For this, also, you might have to change the guidelines. But the important is that you record this from our side in terms of audit for audit purpose, both internal and external. Okay. So what would you say are the most important aspects of the loan contract which should always be in it and which must be ticked? I would say state clearly in the agreement the economic purpose, the interest rate that you're using, and how you are the methodology where you calculate this, and the repayment terms. For covenants, I never saw intercompany loans having some negative covenants. This is because you don't want to penalize the entity or the borrower in case they need to borrow externally. Typically, external lenders, they're not very happy to see that their loans cannot repay or can only be repaid after the intercompany loan is repaid first. Okay. Great. All right. That was already one question from the audience, essentially, which I've just baked in, so now let's say, more formally open the floor for questions. Just a preemptive warning, unfortunately, we won't be able to get through all questions live today, and if we don't get to your question today, we will certainly follow up with you directly. We've brought it up multiple times that the debt capacity analysis, or let's say more broadly, the delineation analysis. From the audience, has a best practice emerged in analyzing debt capacity analysis? Maxime, you from a professional services perspective, can elaborate a little on that question? Yeah. So basically, for the time being, there's no strict guidelines from OECD. So we couldn't anticipate the chance of really detailed guidelines on that. But what we observe is that you can also have an approach based on the cash flow forecast, which is different from the, L et's say, peer analysis of comparables. So it's true that we have those two types of methodology. And then you need to check, or maybe you can also - this is what we can recommend depending on the case - to make one analysis, for example, using a financial ratio, and then a corroborative analysis using, for example, cash flow forecast. Those are the types of solutions that can be provided to a client. In Germany, I know it's a hot topic. It really became a hot topic in Germany. So that's why we recommend for this to check with the local jurisdictions because it's quite new, and tax administration can be really challenging there. But yeah, those are, let's say, the two main types of methodology that we see. But we could expect in the near future some really specific guidelines from OECD on this topic. Okay. Great. I hope that answers the question. There is another one. Simone, is it normal practice to use pricing or spreads of external loans and/or bonds to the parent entity in the group as a sanity check for the pricing spread on internal loans under the presumption that the intercompany loans typically should not have lower interest than the parent or group? What is your response to that one? Yeah. I would say absolutely. If the leader, the head of the group, let's say it's funding itself, issuing a bond, just doing an example, five years using a fixed swap plus a spread, that should be, I would say, the base, especially because, like the pricing said, the intercompany loans cannot have a lower interest than the cost of funding for the company to fund itself on the market, so that could definitely be something to see and practice internally to calculate the spread. You have the head of the group, whatever is the cost of funding for that entity, you're just mirroring and replicating, maybe downgrading the entities by a notch, so yeah. Yeah. Okay, then there is a question about cash pools, something which we didn't address so far yet, so the question being, what are the best practices for managing transfer pricing compliance risk related to cash pooling? Maxime, perhaps you can elaborate a little on that one. Yeah. Yeah. This is going to be more in our prep calls. If there is a cash pooling question, then it's for Maxime. Yeah. I think we could do a specific training or a webinar on cash pool. But generally speaking, what we need to be focused on is the short-term character of this financial instrument. We have seen so far so much cash pool that we are supposed to be managers of the excess of cash. And then it was a position that was lasting more than two years, three years. With the COVID crisis, we see that a lot, that companies that were engaged in a cash pool policy with, of course, interest rates that correspond to a cash pool. And then it was a long-term financial. So this is something that we observe a lot. The second interesting topic, of course, is that you need to determine both a deposit rate and a borrowing rate. This is also something to consider. And then you can tailor-make your cash pool depending on the currency, depending on the company that will borrow the funds. And then you can have a lot of different practices on the cash pool. But yeah. And of course, the legal agreements that support the cash pool policy. But yeah, I would really focus on the short-term character of the cash pool and to be able to show to the tax administration that it's a short-term instrument. It's not a long-term. And it's key. We see also a lot of cash pool where there are always the same entity that deposits and then another entity that is drastically always borrowing the funds. And we see here that there's a mismatch between what is supposed to be a cash pool and what is the actual use by the company of this financial pool. Yeah, and essentially, it works like an internal bank, right, so you should also use the industry classification for that cash pool, being regional bank or whatever, that it aligns essentially also with the risk characteristics, right? Yeah. And also, what is something important to consider is the functional analysis. It's something that a lot of taxpayers forget, but you need to have a functional analysis because at the end, you need to determine to whom, let's say, to which entity the profit should be allocated. So you need to document the benefits for the depositor, the benefits for the borrower. So it's more complex than it seems. And the challenge can come from a lot of different countries. So the cash pool is really a hot topic, and it can be a nice webinar. Perfect. I think we have time for two more questions. Simone, perhaps the following you'd like to take, as we have elaborated a little already on the agreement itself, on the legal perspectives. So to what extent should intercompany loan agreements include covenants, and how can the inclusion of selected covenants help support the debt characterization of the transaction? Yeah. So obviously, for the covenants, what you're doing basically is to stress the fact that the entity wants to get the money back, basically. But again, personally, I didn't see any covenants in intercompany loans so far because you would, let's say, prior to popping in a situation if the entity is looking to borrow capital externally, that would not be so easy. Some banks might require to change this. So I didn't see so far the use for intercompany loans or negative funds. What we could see is maybe adding in the legal agreement something that specifies in the case of default or liquidating the entity a time frame where they can request an early repayment. So I saw in the past some of the entities or some corporates that I worked adding this where they could specify the inclusion of early repayment or require the entity to repay in full and half the amount that they borrowed. Okay. Great, Simone. Great insights from you both. I'm now asked to, in essence, unfortunately, conclude this webinar. I hope for all who have been on the call, it was insightful. We did cover a lot today. So if you have any follow-up questions, please use the Q&A widget, and we will be glad to assist. For those who want to review anything we have covered today, this session has been recorded, and we will receive a replay link tomorrow to access it on demand at your convenience. When we close out the webinar, you will be routed to our webinar evaluation form. We'd love to hear your feedback, so please take a few moments to complete it. So all that's left to say is thank you to you, Maxime and Simone, for your great insights. And thank you all for taking the time to attend the session today. We look forward to you joining us again soon. Bye-bye.