Cash pooling arrangements — where does doing it myself start to cost money?
Some of it, yes — and we will say so on the call if that is the honest answer. The parts that are worth paying for are the ones where a missed election, a missed deadline or an unverified threshold costs more than the fee: a pool leader performing a coordination function earns a routine service reward, while one bearing real credit and liquidity risk earns more.
What if I have already filed and got it wrong?
That is a common starting point. We re-derive the position, identify whether an amendment or a disclosure route is the right vehicle, and tell you which one preserves the relief that is still available. The order matters more than the speed.
How long will it take?
It depends on the documents rather than on us. Once the pack is complete most filings turn around inside a fortnight; anything that needs a certificate from a tax authority runs on that authority's timetable, which we tell you at the start rather than at the end.
How should the benefit of a group cash pool be shared?
That is the real question in a cash pool, and it is harder than the rate. The pool exists because netting balances across the group produces better terms than each company could obtain alone. That advantage is created by the participants putting their balances in, not by the entity that operates the accounts, so it is generally shared among the participants rather than retained by the pool leader. How it is shared has to be decided and written down, whether by balance, by contribution to the netting, or on another basis the group can explain. A pool in which the leader keeps the whole spread is the arrangement most likely to be challenged.
Is our pool leader a service provider or a bank?
Look at what it does and at what it could lose. A pool leader that runs the mechanics, operating the accounts, sweeping balances and keeping the records, performs a coordination function and earns a routine service reward for it. A pool leader that genuinely bears credit risk on participants' borrowings, holds real liquidity risk, and has the capital and the people to manage both is doing something more and is entitled to more. Most treasury companies are closer to the first than the second, whatever their documentation says. The characterisation decides the reward, so it is where the analysis starts rather than where it ends.
What interest rate should participants earn on pool deposits?
Rates follow the characterisation, rather than the other way round. Once it is established what the pool leader does, what risk it bears and how the synergy benefit is to be shared, the deposit and borrowing rates for participants fall out of that analysis. They are the terms that leave each party with the return its functions and risks justify. Setting the rates first and reasoning backwards is the common approach and the one that does not survive examination, because the spread then has no explanation beyond the fact that somebody chose it. Document the characterisation, derive the rates from it, and keep both in the same file.
Why does credit risk decide what the pool leader earns?
Because reward follows risk, and credit risk is the substantial one in a pool. If a participant cannot repay what it has drawn, who takes that loss? If the answer is the pool leader, and the pool leader has the financial capacity to absorb it and the people who set and enforce the limits, then it bears a real risk and its return should reflect that. If the answer is that the parent stands behind everything and the pool leader is an accounting convenience with no capacity to bear a loss, then it is performing a service and should be rewarded as one. The question is who bears the loss in fact.
Does a cash pool need a written intercompany agreement?
It needs one, and it needs one that matches what happens. The agreement should say who the participants are, how balances are swept, on what terms deposits and drawings are remunerated, who bears the credit risk, and how the benefit of the pool is shared. Where a pool operates on nothing more than a bank mandate and an internal practice, there is no record of the arrangement to test, and the analysis has to be reconstructed from bank statements after the fact. Equally, an agreement describing risk-bearing by an entity with no capacity to bear it is worse than none, because the conduct is what a reviewer will look at.
Our treasury company keeps the whole spread, is that defensible?
Rarely, on the facts we usually see. Keeping the entire difference between the borrowing and deposit rates amounts to the pool leader claiming the whole synergy benefit, and that holds only if the leader genuinely bears the risks which would justify it. Where the leader coordinates and the group's credit standing does the work, the benefit belongs largely with the participants. It is worth testing before somebody else does. Establish what the leader does, what it would lose if a participant failed, and what capacity it has, then allocate the benefit on a basis you can explain. The answer may support some retention, but seldom all of it.
Can you give a plain transfer pricing example?
A Canadian company manufactures at a cost of one hundred and its US subsidiary sells to customers for one hundred and eighty. If the parent invoices the subsidiary at one hundred and ten, most of the margin is taxed in the United States; invoice at one hundred and seventy and most of it is taxed in Canada. Nothing about the business changed — only which treasury collects. That is why the arm's length price, the one unrelated parties would have agreed, is the reference point both authorities use. See our transfer pricing work.
What are the transfer pricing methods?
Five, in two groups. Three compare transactions: comparable uncontrolled price, resale price, and cost plus. Two compare profits: the transactional net margin method, and profit split. The OECD asks for the most appropriate method on the facts rather than a fixed hierarchy; the United States applies a best-method rule to similar effect. Selection is itself a documented judgment, and a method chosen without recording why is a weak position under audit. See our transfer pricing work.
