Intercompany loan rate builder
Build an intercompany interest rate from its components and test the actual rate.
Open itA financial guarantee is worth what it saves the borrower in interest, and the fee has to sit somewhere between nothing and the whole of that saving. Enter both borrowing rates and choose the split; this prices the fee in money and in basis points.
The guarantee
$
The principal the support applies to.
%
The borrower priced on its own credit standing, with no group support at all.
%
The rate actually available once the parent has given the undertaking.
%
Annual fee
—
In basis points on the amount covered —
No interest saving to price —
Borrower still better off after the fee —
Interest saving, in points—
Interest saving a year—
Ceiling for the fee — the whole saving—
Floor for the fee—
Fee at the split you chose—
Saving the borrower keeps—
Interest a year with the support—
Interest plus the fee—
All-in rate to the borrower—
The yield approach, and why it sets a ceiling rather than a price
The standard starting point is the interest the support saves: the difference between what the borrower would pay alone and what it pays with the undertaking in place, applied to the amount covered. That figure is a ceiling, not a price. A borrower that hands the entire saving to the guarantor has gained nothing and would not sign, so an arm's length fee has to be below it.
At the other end, the guarantor is taking on real risk and would not do so for nothing, which sets the floor above zero in substance if not in arithmetic. Where in between depends on bargaining position, and a split of the saving is how most files land — with the reason for the chosen split written down.
Two traps: implicit support and the wrong standalone rate
The standalone rate has to be the borrower's own, priced without the explicit undertaking. It should not be the rate a completely unrelated company of the same size would pay, because the borrower's membership of the group already improves how a lender sees it. That improvement — implicit support — is not something the group provides as a service, and charging for it is the most common defect in these files.
The second trap is charging a fee where no saving exists. If the borrower could already access the same rate on its own, the undertaking has changed nothing and the readout says so rather than producing a number.
Worked example
A parent supports 10 million of subsidiary borrowing. The subsidiary alone would pay 8.5%; with the undertaking in place it pays 6.0%.
- The saving is 250 basis points, which on 10 million is 250,000 a year. That is the ceiling for the fee.
- A half-and-half split gives a fee of 125,000, or 125 basis points on the covered amount.
- The borrower’s all-in cost becomes 6.0% plus 125 basis points — still well below the 8.5% it would have paid alone.
Move the split to zero for the borrower and its all-in cost equals the standalone rate exactly. That is the arithmetic showing why the ceiling cannot be the price.
What this calculator assumes
- The saving is measured on the amount covered for one year at the two rates you enter. Amortising principal, drawn versus committed amounts and fee structures are not modelled.
- The standalone rate must exclude the explicit support but may reflect the borrower being part of the group. Implicit support is not a chargeable service.
- The split is a bargaining outcome, not a formula. Whatever you choose needs a documented reason.
- A cost approach — the guarantor’s expected loss — sets a different and usually lower floor. It is not modelled here.
An estimate, not advice. This is an estimate built from what you typed, not advice on your file. Nothing here reads your documents, checks your treaty article or looks at the year you are actually in. Where the number matters, we agree a fixed fee in writing before any work starts.
Where these figures come from
- current guidance OECD Transfer Pricing Guidance on Financial Transactions — financial guarantees
- current guidance Canada — transfer pricing, CRA
- current guidance India — transfer pricing, Income Tax Department
Any figure prefilled in the panel above is stated with the year it belongs to and can be changed. Rates and thresholds move; a calculator that asks you for the current one stays right, and one that hides a guess does not.
What these engagements turn on
Case study 1
Guarantee fee estimated for an intercompany loan guarantee arrangement
A parent company guaranteeing a subsidiary's third-party loan needed to understand what an arm's length guarantee fee would look like before formalising the arrangement. We estimated the fee based on comparable guarantee pricing and the subsidiary's own credit profile, and the group used the estimate to set the intercompany charge.
Case study 2
Fee benchmark revisited after a subsidiary's credit profile improved
A subsidiary's standalone credit profile had improved since its intercompany guarantee fee was first set, and the group wanted to know whether the fee should be adjusted downward to reflect the reduced benefit the guarantee now provided. We re-estimated the fee against the subsidiary's current credit standing, and the group adjusted the charge to match the updated position.
Case study 3
Guarantee fee documented to support an existing intercompany arrangement under review
A group's existing intercompany guarantee fee had never been formally benchmarked and was queried during a transfer-pricing review. We estimated the appropriate fee using the subsidiary's credit profile with and without the guarantee, and the documented analysis supported the fee already being charged.
Case study 4
A Pricing Study That Started With Who Does What
Functions, assets and risks decide which entity should earn the return, and the method follows from that rather than the other way round. Getting the sequence backwards is how a study fails on its first question.
Read how this one runs
Case study 5
Documentation Requested, and the Deadline Is Not Extendable
Contemporaneous documentation has to exist by the filing deadline, not be assembled when it is asked for, and the penalty protection turns on that timing. The engagement produces the analysis for the year in question and puts a repeatable process behind the next one.
Read how this one runs
Case study 6
A Company Abroad Owned by a US Person
A business incorporated where the owner lives is a foreign corporation to the IRS, with a reporting package of its own and schedules that need local accounts restated. Classification comes first, because it decides what is reportable and when profits are taxed.
Read how this one runs
Case study 7
A Family Trust Abroad With Reporting on Both Sides
A trust settled in one country and a beneficiary living in another produces reporting for the trust, the settlor and the beneficiary, on different forms and different dates. The engagement maps who files what before anything is prepared.
Read how this one runs
Case study 8
A Disclosure Where the Facts Were Not Innocent
Where non-compliance was not inadvertent, the certification-based routes are unavailable and a different practice applies, with its own protections and its own price. Establishing which side of that line the facts fall on is done before contact is made.
Read how this one runsAll case studies — every published engagement in one place.
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