White paper | November 25, 2021

Structural balances: an unnecessary source of risk

Cash Pooling

Treasurers tend to overlook the transfer pricing classification of their treasury transactions. While corporates often focus on appropriately pricing cash pool transactions and intercompany loans, it may be forgotten to evaluate the tenor of the funding. Structural cash pool balances give tax authorities an opportunity to reclassify positions into long-term intercompany loans. This significant transfer pricing risk is addressed in this article. Discover how to easily mitigate this risk.

Short-term vs. long-term

Although it is highly recommended to document intercompany transactions and their respective transfer pricing analyses, it should not be neglected that each functional analysis should be in line with the economic reality. Apply these principles to cash pooling balances and one instantly links it to the short-term nature of cash management. If the pooling balances are structurally negative or positive, it could be argued that the cash pool is not only used for short-term liquidity needs but also to provide long-term financing.

Periodic reviews to mitigate transfer pricing risk

Structural balances thus give tax authorities an instrument to reclassify (a portion of) the cash pool position as a long-term intercompany loan. As the interest rate build-up is significantly different between both transaction types, it may consequently have adverse effects on the corporate taxation of the involved subsidiary. In order to prevent such adjustment as well as lengthy audit discussions, treasurers are advised to periodically review all outstanding cash pool balances. It should be noted that this is especially important for any type of cross-border cash pooling.

Defining ‘structural’

The key question is whether a balance is considered long-term or structural. The OECD suggests a tenor of one ear. Although some local tax authorities transparently adopted this 12-month threshold, other administrations put forward a stricter definition of six months. This misalignment between various jurisdictions creates hurdles for corporates, especially for those that have cross-border pooling arrangements. It is advised to adopt a transfer pricing policy around the treatment of cash pool balances. This policy should at least incorporate the timing threshold as well as the periodicity at which the positions are reviewed. This could, for example, be linked with the seasonality of the industry. Additionally, a materiality threshold may be added in order to prevent the creation of numerous low-value intercompany loans.


Treasurers should be aware that long-term cash pool positions may be treated as intercompany loans from a transfer pricing perspective. In order to prevent lengthy audit discussion and potential transfer pricing adjustments, a periodic review of the cash pool positions is required. Following a clear policy, treasurers should take out structural cash pool positions and price them as intercompany loans in order to align the type of transaction with the economic circumstances. A clear policy and a diligent process enable corporates to mitigate the risk.