Group financing companies are popular amongst MNE groups. They allow for the distribution of cash-flows amongst group members in a tax efficient manner, and enable a centralized hub for intercompany loans.
The tax implications of group financing companies are well documented. Not least the transfer pricing/arms-length requirements and the importance of mitigating withholding tax via double tax treaties and multilateral agreements (such as the EU Interest and Royalties Directive).
However, the global minimum tax under Pillar Two
of the OECD two-pillar solution also includes a number of provisions that can impact on group financing companies, and in particular the extent to which they will be subject to Pillar Two top-up tax
, unless they are reorganised.
Investment funds that are the UPE of an MNE group are excluded entities. It is unlikely in most cases that the group financing company would be the UPE. In addition, the definition of investment fund in Article 10 of the OECD Model Rules
is relatively restrictive in that it needs to meet all of the following conditions: