In the United States, there are specific tax rules that treasurers should consider when implementing cash pool structures. This includes Sections 385 and 482 of the United States Internal Revenue Code federal tax law. These sections regulate, among other things, the composition of taxable income in connection with intra-group loans.
This also includes intercompany loans that arise between the subsidiaries involved and the cash pool parent. “Treasurers should use these regulations, which are mentioned in the sections, to properly document all transactions within the cash pool,” says DeVos. This includes in particular how transfer prices customary for third parties are defined and used for intra-group interest.
The banker also recommends maintaining the documentation on a daily basis. “Daily cash pooling transactions, which are shown on bank statements, can be used for a clear and verifiable booking of intra-group loan amounts and interest.” With constant, proper documentation, the risk of a tax penalty also decreases.
He also recommends that the Treasury take a closer look at the US tax reform “Tax Cuts and Job Act” (TCJA) that came into being in 2017. It prescribes a rule of under capitalization that applies to the deduction of interest expenses. The net interest expense of a company can therefore be deducted with 30 percent from the adjusted taxable income (Ebitda).
s.backhaus[at]dertreasurer.de
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