The gap
Treasury exists to manage liquidity, funding and financial risk. Tax exists to make sure the group’s positions hold up. In most mid-market and PE-backed groups they are two people who meet quarterly, or one person wearing both hats. Meanwhile almost every significant treasury action creates a controlled transaction: a loan, a guarantee, a pool participation, a hedge routed through a central entity. The decision comes first, for sound treasury reasons. The price is attached later, at documentation time, usually by someone who was not in the room.
Why it matters for pricing
The cost of that sequencing is not theoretical. Four examples, all ordinary.
A cash pool concentrates liquidity, with participants credited at close to nothing because that is what the pool leader’s bank was paying. Rates rise. Nobody revisits it. The pool now routes the entire benefit of normalisation to one entity, and the question is no longer operational but who was entitled to it. A subsidiary is funded in whichever currency carries the lowest coupon. It was never a saving: it was compensation for currency risk the borrower now carries, unhedged and unpriced. A parent guarantee is given because the lender asked for it, and no fee is charged because no cash moved — but the benefit is real, and charging nothing is a position, not a neutral fact. A facility is renewed on last year’s terms because renewal is administrative. It is a new transaction.
Each was a defensible treasury decision that created a pricing question treasury had no reason to ask and tax had no visibility to catch. The exposure is not caused by bad treasury. It is caused by the order of operations.
It costs in both directions, which is why it is worth fixing rather than arguing about. Overpriced intragroup debt is a permanent cost: the deduction is denied in one country, the income stays taxable in the other. Underpriced is an adjustment, plus interest, plus penalties. The analysis that would have settled either takes an hour at structuring and weeks to reconstruct three years later — by which point it reads as a defence, not a policy.
Our view. The fix is sequencing, not headcount. The pricing question belongs inside the treasury decision — before the money moves, not at the documentation cycle. Groups that close this gap do it with a written financial transactions policy, not a bigger team.
What this means for your business
- Make the list. Loans, guarantees, letters of comfort, pool participations, netting, cross-currency funding — every intercompany arrangement with a financial characteristic is a controlled transaction. Most groups underestimate the count.
- Price at inception. A benchmark run while the transaction is being structured costs an hour. The same benchmark reconstructed under audit costs weeks and persuades nobody.
- Write the policy once. Which entity funds, in which currency, on what terms, priced by what mechanism. That turns every future decision into the application of a rule rather than a fresh judgement under time pressure.
- If you have no treasury function, say so in the file. Plenty of mid-market and PE-backed groups run treasury out of finance. That is defensible. Not recording who decided, and why, is not.
Sources
OECD Transfer Pricing Guidelines, Chapter X — accurate delineation, intra-group loans, cash pooling, financial guarantees. ajiho analysis. No client or confidential information is used in any Signal publication.