Transfer Pricing- Practical Issue

yes transfer pricing will apply

Yes Transfer pricing will definately apply and comparivites i thnk can be what if the company gives guarantee for other thn subsidiary and what sort of arrangement do it make with tht non related entity..

but generally other companies can not give guarantee

Hi,

Looks like in your case, the Parent Company stood as 'guarantor', for the borrowing from an external agency such as bank or financial institution, on behalf of the subsidiary. In such a case, the guarantee fee charged by the bank/FI on the Parent company will normally passed on to the 'subsidiary company' since it is the beneficiary of the funds. Hence in this case, you may adopt CUP method  (ie the fee paid by parent company to the lending institution is the arm's length price) to justify the payment/charge of guarantee fee by the Parent on the Subsidiary (your client).

You may get some more details from your client as to the nature of guarantee etc. to get the correct analysis of arm's length pricing. Hope this answer helps. If you would like to share the specific issue, please email me at anandhi.ca @ gmail.com.

Regards

Anandhi