Does my parent company have to charge us for guaranteeing our loan?
It depends on whether the guarantee actually improved your borrowing terms. Belonging to a group already carries a benefit, because lenders price in the possibility that a parent would step in, and that implicit support is not chargeable. A fee is due where the formal undertaking took your terms beyond that point. So the first step is to establish what you could have borrowed on your own credit standing, and then what the guaranteed facility gave you. If the two are close, there may be nothing to charge. If the gap is real, the guarantor has provided something an independent party would pay for.
How is a guarantee fee actually calculated?
The usual method is the yield approach. You establish the rate the borrower could have obtained standing alone, compare it with the rate obtained with the guarantee, and treat the saving as the amount available to be shared. The whole saving does not go to the guarantor. Part of it reflects implicit support the group gave for nothing, and the remainder is split to reflect the risk the guarantor has genuinely assumed. What makes the result defensible is the working: the credit assessment behind the standalone rate, and the reasoning behind the split. A fee asserted as a round figure with no computation behind it is what an examiner asks about first.
What is implicit support and why does it reduce the fee?
Implicit support is the benefit a borrower gets simply from being part of a group a lender expects would not let it fail. Nobody charges for it and nobody can, because nothing has been undertaken. It still shows up in the price the bank offers. When you price a guarantee, that portion of the improvement has already been given away for free, so charging for it again overstates the fee. Separating the two is the analytical heart of the exercise: the chargeable amount is what the legal undertaking added on top of the association.
The bank cut our rate because of the group name — is that chargeable?
No. If the improvement came from the lender's view of the group rather than from an undertaking somebody gave, nothing has been provided that an independent party would pay for. This is where the analysis often ends. Read the facility documents and establish whether a guarantee, an indemnity, a comfort letter or nothing at all sits behind the pricing. A group name is not a transaction. Where a formal undertaking does exist alongside the reputational benefit, only the part of the improvement attributable to that undertaking is priced, and the file has to show which part that is.
Can the guarantor charge the whole interest saving as its fee?
Rarely. Taking the entire saving assumes the guarantee alone produced it and that none of the benefit belongs to the borrower, and neither usually holds. Part of the improvement comes from implicit support, which was free. The rest reflects a bargain two independent parties would strike: the borrower would not pay away everything it gained, and the guarantor would not accept less than compensation for the exposure it has taken on. The fee therefore sits between the guarantor's risk cost and the borrower's benefit, and the documentation should explain why it sits where it does.
What documentation supports an intercompany guarantee fee?
A credit assessment of the borrower on a standalone basis, the guaranteed terms it actually obtained, the computation of the difference between the two, the reasoning that separates implicit support from the value of the undertaking, and the basis for splitting what remains. Alongside that, the legal documents: what was guaranteed, for how long, and up to what limit. The written agreement matters because it fixes what the guarantor is exposed to, and the fee has to correspond to that exposure. A study prepared for one year does not carry forward untouched, because the borrower's credit standing and market pricing both move.
How does a remittance actually work, and is it taxed?
A remittance is a transfer of money, not a category of income, and moving your own funds between your own accounts is not what creates tax. What can create tax is the income behind the money and the rules of the country it leaves. India, for instance, collects tax at source when a resident individual remits abroad under the Liberalised Remittance Scheme, and requires certification before certain payments leave. The transfer is the trigger for paperwork rather than for tax. See the LRS and tax collected at source.
What counts as foreign income, and what is a foreign tax?
Foreign income is income sourced outside the country you are filing in — where the work was done, where the property sits, where the payer is resident, depending on the type. A foreign tax, for credit purposes, is a levy imposed by another country that functions as an income tax and that you were legally required to pay. Consumption taxes, property taxes and most social contributions are not, however real the cost. Sourcing is decided by rule, not by which bank received it. See the foreign tax credit.
